IAASB issues alert on audit of letterbox companies

The IAASB has issued guidance to clarify the responsibilities of an audit engagement partner not located where the majority of the audit is being conducted, and group audits.

Audits involving other auditors, whether from the same firm or network firm, or another firm, have proven challenging for many years.

A Staff Audit Practice Alert (the Alert) issued by the International Auditing and Assurance Standards Board (IAASB) provides a useful reminder of how International Standards on Auditing (ISA) (the basis for Canadian Auditing Standards) apply in circumstances when the engagement partner is not located where the majority of the audit work is performed.

An entity may be structured such that it is legally registered in one jurisdiction and the majority of the general and financial management, business activities and transaction processing are undertaken in other jurisdiction(s) (sometimes referred to as letterbox companies). Often, the engagement partner is located where the entity is legally registered, with the majority of the audit work being performed in the other jurisdiction(s).

The Alert indicates that accomplishing the objectives of the ISAs in audits of letterbox companies can pose different challenges than in situations when the engagement partner is located where the majority of the audit work is being performed. The key take-away is that the engagement partner is still responsible for a quality audit in accordance with the ISAs that supports the auditor’s conclusion that sufficient appropriate audit evidence has been obtained on which to base the auditor’s opinion.

If the audit is a group audit (in other words, if there is more than one component), the requirements in the group audit standard also apply.

The Alert is an initial response by the IAASB, and focuses on a broad range of complex issues relating to the topics of group audits and quality control as a high priority.

This Alert will be of interest to Canadian auditors and is a useful addition to other guidance issued by CPA Canada relating to group audits.


Read the Alert and tell me whether you think it addresses the issues arising from the audit of letterbox companies. How pervasive are these audits in Canada? Do you think such audits are a big issue?

Post a comment below; or email me directly.

CPA Canada’s Audit Quality Blog is designed to create an exchange of ideas on developments and issues in global audit quality, as well as their impact in Canada.

About the Author

Eric Turner, CPA, CA

Director, Auditing and Assurance Standards, CPA Canada