2313 Group audit guidance roadmaps

Oct-2012

This flowchart shows the guidance on planning.

The first audit manual section to consult is OAG Audit 2321—Acceptance and continuance as group auditor. In addition to acceptance and continuance guidance in OAG Audit 3011, the group engagement leader should consider the following:

• the OAG’s ability to act as group auditor
• whether the OAG will have sufficient involvement in the work of the component auditors
• whether sufficient appropriate audit evidence can be obtained
• any circumstances where the group auditor is prohibited from refusing or resigning an engagement (such as appointment for public sector engagement)

The next audit manual section to consult is OAG Audit 2322—Obtain an understanding of the group in our acceptance and continuance procedures.

To make acceptance and continuance decisions, the group engagement team should obtain (for new engagements) or update (for continuing engagements) their understanding of the group, its components, and its environment and identify likely significant components.

The next audit manual section to consult is OAG Audit 2324—Evaluate involvement in the work of component auditors of significant components.

The group engagement team determines the nature, timing, and extent of their involvement in the work performed by the component auditors by considering the following:

• significance of the component
• identified significant risks
• understanding of the component auditors

The next audit manual section to consult is OAG Audit 2325—Engagement letters. In addition to engagement letter guidance in OAG Audit 3040, for group audits, there are the following 2 requirements.

First, the group engagement team should do the following:

• Identify the applicable financial reporting framework used for the group financial statements.
• Consider additional items related to unrestricted access at the components.
• Where applicable, provide the component auditor with instructions to consider in their local engagement letters (that is, in the group instructions).

Second, the component auditors should follow their requirements where separate financial statements are prepared and consider the group auditor’s policies. In so doing, the component auditors should also be cognizant of the policies applicable to the group auditor.

The next audit manual sections to consult are OAG Audit 2326 to 2329—Understand the component auditors. The determination of the audit approach is influenced by the group engagement team’s understanding of the component auditors, including the following:

• compliance with ethical requirements, particularly independence
• professional competence
• sufficient involvement of the group auditor in the work of the component auditor
• the regulatory environment

The procedures will vary depending on whether the component auditor is the OAG or an external firm or auditor.

These sections provide guidance on independence, quality controls, and the financial reporting framework and generally accepted auditing standard (GAAS) competency for both the OAG and external firms and auditors.

This flowchart shows the guidance on developing the audit strategy and plan.

The first audit manual section to consult is OAG Audit 2331—Obtain an understanding of the group, its components, and their environments as part of our risk assessment procedures.

The group engagement team should enhance their understanding of the group obtained during acceptance and continuance sufficient to confirm the initial identification of significant components and assess risks of material misstatement of the group financial statements. This understanding includes the following:

• group structure and components, including governance
• group-wide controls
• internal audit
• financial reporting framework
• consolidation process and related adjustments
• instructions issued by group management to components

The next audit manual section to consult is OAG Audit 2332—Risk assessment at the group level. The group engagement team does the following:

• assesses risks of material misstatement at the group level based on information gathered throughout planning
• considers conditions or events that may indicate risks of material misstatements
• discusses risks of material misstatements, including fraud, with group and component engagement teams as appropriate

The next audit manual sections to consult are OAG Audit 2333 and 2334—Determine materiality in group audits. In addition to considerations when determining materiality for a single entity, the group engagement team determines (or evaluates) the following:

• group overall and performance materiality
• materialities for particular classes of transactions, account balances, and disclosures at the group level
• component overall materiality
• component performance and materialities for particular classes of transactions, account balances, and disclosures
• de minimis summary of uncorrected misstatements (SUM) posting level

The group engagement team also considers the impact, if any, of integrated and controls-based audits, intercompany accounts, and statutory or rotational audits. The guidance contains an optional methodology for determining component materialities.

The next audit manual section to consult is OAG Audit 2335—Determine the type of work to be performed on the financial information of components.

The group engagement team needs to do the following:

• determine the appropriate nature of the work considering the following:
  • components that are of individual financial significance
  • components with significant risks
  • components that are not significant components
• determine the nature and extent of work in group audits that consist only of components that are not significant
• consider the impact of components subject to audit by statute, regulation, or other reason
• select from the following types of work:
  • audit of the component’s financial information
  • audit of 1 or more account balances, classes of transactions, or disclosures
  • specified audit procedures relating to the significant risks
  • review of the component’s financial information
  • analytical procedures performed at the group level
• communicate an overview of the type of work to be performed on components to the client.

The next audit manual section to consult is OAG Audit 2380—Shared service centres.

During planning, the group engagement and component auditors determine the significance of shared service centres, which may, for example, include the following:

• data centres
• transaction processing centres (such as for payables or receivables)
• full accounting centres (such as those including group treasury or statutory account preparation functions)

The group engagement team also establishes the level of audit evidence needed over the functions and processes at the shared service centres and assigns 1 audit team to perform specified procedures on behalf of the group engagement team or component auditors.

Efficient and effective auditing in a shared service centre environment includes the following:

• understanding the client’s group structure and responsibilities before planning the shared service centre audit
• communicating and collaborating between the group, component, and shared service centre engagement teams in planning and executing the work.
• leveraging the results of the shared service centre audit testing to reduce audit effort in the group and component audits
• using a “report on specified procedures” format to communicate the information to the group engagement team component auditors

This flowchart shows the guidance on communication.

The first audit manual section to consult is OAG Audit 2341—Communicate group audit instructions to component auditors.

During the early stages of the engagement, the group engagement team needs to issue group instructions to the component auditors, ordinarily in the form of a letter of instruction, which includes required and recommended matters (detailed in this section).

The next audit manual section to consult is OAG Audit 2342—Communication between group and component auditors during the audit.

The component auditor should timely do the following:

• Inform the group engagement team if the component auditor has statutory or other reporting responsibilities in addition to, or different from, those requested by the group engagement team or has other local restrictions.
• Report any important matters or finding that arise as work on the component progresses.
• Report to the group engagement team any information that may affect the group financial statements, whether or not the information affects their interoffice opinion.

The group engagement team needs to timely report to the component management and auditors any information that may affect the component financial statements, whether the information was discovered by the group engagement team or reported to the group engagement team by other component auditors.

The next audit manual sections to consult are OAG Audit 2343, 2345, and 2372—Communicate results.

The group engagement team determines the communication protocols at the inception of the audit.

The component auditor would ordinarily communicate the results of their work in a memorandum of work performed and report clearance summary (the contents of which are described in OAG Audit 2343).

The next audit manual section to consult is OAG Audit 2344—Communication with group management and those charged with governance of the group.

In addition to client communications guidance in OAG Audit 2200, the group engagement team communicates the following information to the following people:

• fraud and significant deficiencies with group management:
  • Where component management is not aware of matters that affect the component auditor’s audit opinion, request group management informs the component management.
• the following with those charged with governance of the group:
  • planned work to be performed on the components of the group
  • the group engagement team’s planned involvement in the work of the component auditor of significant components
  • if the group engagement team’s evaluation of the work of the component auditor raises concerns about quality
  • any limitations on the group audit

This flowchart shows the guidance on completion.

The first audit manual section to consult is OAG Audit 2362—Evaluation of the component auditor’s report and audit evidence obtained.

The group engagement team needs to evaluate the component auditor’s report of the work performed and do the following:

• determine whether the work is sufficient and reliable for their purposes
• discuss significant matters as necessary
• determine whether to review other documentation

The team also needs to do the following:

• update planning decisions related to the group engagement team’s involvement in the component auditor’s work
• evaluate the sufficiency and appropriateness of the audit evidence obtained on which to base the group audit opinion
• consider the effect of the component auditor’s report on the group audit opinion The next audit manual section to consult is OAG Audit 2351—Work to be performed on the group consolidation process.

The group engagement team needs to perform work on the consolidation process considering, for example, the following:

• assessed risks of material misstatement from the consolidation process
• adjustments, eliminations, and reclassifications
• fraud risk factors or possible management bias

The team also needs to consider attributes of component financial information that will be consolidated, including the following:

• whether information in the consolidation is the same as the information provided in the component auditor’s report
• information that is prepared on a different basis
• the acceptability of consolidating financial information from components with different period ends

The next audit manual section to consult is OAG Audit 2361—Review of working papers of component auditors.

The group engagement team may decide to review the working papers of component auditors, depending on the component (such as its size) and the component auditor (such as the OAG or not). The section contains examples of procedures.

The next audit manual section to consult is OAG Audit 2314—Required documentation.

In addition to the audit documentation required by the Canadian Audit Standard 230, other Canadian audit standards, and other sections of the OAG audit manual, the group engagement team also needs to document the following:

• the nature, timing, and extent of the group engagement team’s involvement in the work of the component auditors and the basis thereof
• its analysis of components and the type of work performed
• the group engagement teams’ communication of their other requirements
• the disposition of matters raised by the component auditor
• the rationale for materiality levels