A new approach for group audits

In August 2022, the revised group audit standard, Canadian Auditing Standard (CAS) 600, Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors) was issued in the CPA Canada Handbook – Assurance. CAS 600 was revised to strengthen the auditor’s responsibilities related to professional skepticism, planning, and performing a group audit; two-way communication between the group auditor and component auditors; and documentation. The revised standard also clarifies the interaction of CAS 600 with other CASs.

This blog provides:

• information on the revised standard, including the effective date
• an overview of the significant changes
• information on how to prepare for implementation

Why were changes needed?

The extant CAS 600 was issued as part of the clarified CASs in 2010. When the International Auditing and Assurance Board (IAASB) conducted a post-implementation review of the clarified International Standards on Auditing (ISAs), stakeholders identified issues with the group audit standard.

The revisions made to CAS 600 address the issues identified through the post-implementation review, inspection findings and ongoing outreach with stakeholders.

What are the significant changes?

CAS 600 has been revised to:

• clarify the scope of the standard, including whether and how the standard applies to:
  • entities with branches and divisions
  • non-controlled entities, including equity-accounted investees and investments carried at cost
  • shared service centres
• introduce a principles-based approach to the group audit that is adaptable to a wide variety of circumstances, and scalable for audits of groups of different complexities
• establish a framework for planning and performing a group audit engagement, a framework that:
  • emphasizes special considerations for establishing the overall group audit strategy and group audit plan
  • requires the group auditor to determine the nature, timing, and extent of involvement of component auditors
  • also highlights that component auditors can be, and often are, involved in all phases of the group audit
• clarify how the concepts of materiality and aggregation risk apply in a group audit
• foster an appropriately independent and challenging skeptical mindset of the auditor
• reinforce the need for robust communication and interactions with component auditors during the audit
• clarify the various types of restriction issues and ways in which the group auditor may be able to overcome restrictions on access to people, information, and audit documents – including restrictions on access to component management, those charged with governance of the component, component auditors, or information at the components
• enhance the documentation requirements and clarify what the group auditor may need to document in different situations, including when there are restrictions on access to component auditor audit documentation
• reinforce that all CASs need to be applied in a group audit engagement through establishing stronger linkages to the other CASs, in particular:
  • CAS 220, Quality Management for an Audit of Financial Statements
  • CAS 230, Audit Documentation
  • CAS 300, Planning an Audit of Financial Statements
  • CAS 315, Identifying and Assessing the Risks of Material Misstatement
  • CAS 330, The Auditor’s Responses to Assessed Risks

Practitioners are encouraged to read CAS 600 to gain an understanding of the full requirements.

Getting ready for implementation

When is the standard effective?

CAS 600 is effective for audits of group financial statements for periods beginning on or after December 15, 2023, with early application permitted. Although there is some time before the standard is effective, practitioners will need time to update their methodologies for conducting group audits and to communicate new expectations when component auditors are involved.

What can you do to prepare?

The effective date of the standard may seem a long way off, but these revisions will mean significant change to your group audit. Implementing the changes will take time. To avoid being overwhelmed later, read the standard and watch for guidance and tools being released over the next year to assist you.

Where can you go for help?

CAS 600 was issued into the CPA Canada Handbook – Assurance in August 2022, along with the Basis of Conclusions which summarizes significant decisions reached by the Canadian Auditing and Assurance Standards Board (AASB) in finalizing the revised CAS 600.

The recently published Audit & Assurance Alert explains 12 key changes to CAS 600, including the change to the scope of the standard and identification of components for purposes of the group audit, responsibilities of the group engagement partner, implications of restrictions on access to information and people, clarification of component performance materiality and definition of aggregation risk. The Alert also discusses the guidance in CAS 600 for those situations where an auditor’s report has been issued for statutory, regulatory or other reasons and the group auditor plans to use such work as audit evidence for the group audit.

CPA Canada is developing non-authoritative guidance resources to support implementation of the revised standard. Look for these resources to be published by mid-2023.

To learn more about the changes to ISA 600, practitioners can also read the IAASB’s Basis for Conclusions (April 2022) and Fact Sheet: Audits of Group Financial Statements – Introduction to International Standard on Auditing 600 (Revised), Audits of Group Financial Statements (Including the Work of Component Auditors).

Keep the conversation going

Do you have specific questions about the revised group audit standard? As you start acquainting yourself with this standard, you may have questions about applying it. Share your questions by emailing me directly.

Disclaimer

The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.