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Clarified Auditing Standards: Audits of Group Financial Statements – Part 4

Oct 22nd 2015
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The final part of this article will discuss the performance and completion phase of group audits under AU-C Section 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors).

Performance Phase of Group Audits

Perform the maximum amount of interim work that is practical before the reporting date. Some examples of interim work at both the group and component levels are:

  • Risk assessment procedures.
  • Reading minutes from meetings of boards of governance.
  • Substantive tests for property.
  • Plant and equipment.
  • Debt and expenses.
  • Interim analytical procedures, including scanning the general ledger.
  • Cycle counts of perpetual inventories.
  • Receivables confirmations.
  • Loan file exams for banks.
  • Site inspections for construction contractors.
  • Planning activities, including completing or replicating core documentation.
  • Overseeing client working paper preparation, assembling or preparing basic audit documentation, and other work.

Perform highly-effective analytical procedures whenever possible that can generate evidence for evaluating all financial statement assertions for accounts, such as sales and revenues, certain salaries and wages, payroll taxes, depreciation, interest income and expense, etc.

Perform tests of balances procedures in the group audit program, and prepare appropriate audit documentation to demonstrate compliance with applicable quality control and auditing standards.

Additional Group Audit Performance Procedures

  • The group auditor is required to design and respond to identified risks of material misstatement from analytical, risk assessment, and tests of balances procedures, including those resulting from the consolidation process.
  • Tests of the group internal controls over the consolidation process on a groupwide basis will normally be required as part of the risk assessment procedures.
  • Consolidating adjustments and reclassifications should be evaluated for appropriateness, completeness, and accuracy, including any adjustments of accounting policies or principles in the applicable reporting framework for components that are not consistent with the framework used by the group entity.

General Audit Completion (Wrap-Up) Procedures for Group Audits

  • Complete in-charge accountant's review of assistant's work as soon as it is completed, and clear review points as soon as possible.
  • Plan to clear open items early (do not leave items to last minute).
  • Complete or review the consolidation process.
  • Draft audit report, financial statements, and footnotes (finalize if client prepares).
  • Prepare a list to facilitate engagement leader's final review, identify any significant issues not discussed with the leader and their resolution, and identify specific documentation prepared by the in-charge accountant that needs the leader's review.

Additional Group Audit Completion Procedures

  • Review results of the component auditor's work, and determine sufficiency of evidence obtained and conclusions reached.
  • Obtain the component auditor's confirmation letters.
  • Make final review of group financial statements.
  • Prepare group audit report.

The group in-charge accountant should schedule the leader's review (and all other required reviews) in the field whenever possible (otherwise, schedule staff time to complete in-office wrap-up and review). After the group engagement leader's (partner's) final review of working papers, audit report, and financial statements and footnotes, review points and open items should be cleared as soon as possible.

The group in-charge accountant should also:

  • Prepare the group internal-control communication letter and obtain the engagement leader's (partner's) review.
  • Obtain client's approval of a draft of the group financial statements.
  • Present a draft of the group internal-control communication letter, and get the group entity management representation letter signed.
  • Meet and communicate with persons charged with group governance.

Group administrative wrap-up procedures should also be performed, including:

  • Furnishing clients with proposed adjustments.
  • Discussing their content and documenting client responses.
  • Obtaining all signed correspondence.
  • Making sure all review notes and open items lists are cleared and destroyed.
  • Preparing a list of time-savings issues for next year.
  • Preparing, reviewing, and issuing all necessary tax returns.
  • Completing final time-accumulation schedules and comparing with budgets (if required by firm policy).

Final completion procedures include:

  • Holding a post-engagement training meeting with group engagement personnel.
  • Completing final quality-control procedures.
  • Documenting the report release date.
  • Locking or securing audit documentation files.

Identify, discuss, and communicate to the group or component entities any additional services that could help them accomplish their operational objectives.

More Information
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  • Small Audits Made Easy and Profitable
  • Performing Auditing Tests of Balances Procedures
  • Staff Training Series for Entry-Level Accountants, New In-Charge Accountants and Engagement Leaders
  • Key Accounting Issues for Non-Profit Organizations
  • A Practical Potpourri of Time Savings on Audits
  • The Financial Reporting Framework for Small- and Medium-Sized Entities

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My assistance in CPA firm quality-control consulting, audit planning, and peer-review preparation can be obtained by sending an email using the “Contact Us” tab on my home page.

Related articles:

Clarified Auditing Standards: Audits of Group Financial Statements – Part 1
Clarified Auditing Standards: Audits of Group Financial Statements – Part 2
Clarified Auditing Standards: Audits of Group Financial Statements – Part 3


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