Annual Audit Manual
COPYRIGHT NOTICE — This document is intended for internal use. It cannot be distributed to or reproduced by third parties without prior written permission from the Copyright Coordinator for the Office of the Auditor General of Canada. This includes email, fax, mail and hand delivery, or use of any other method of distribution or reproduction. CPA Canada Handbook sections and excerpts are reproduced herein for your non-commercial use with the permission of The Chartered Professional Accountants of Canada (“CPA Canada”). These may not be modified, copied or distributed in any form as this would infringe CPA Canada’s copyright. Reproduced, with permission, from the CPA Canada Handbook, The Chartered Professional Accountants of Canada, Toronto, Canada.
2321 Acceptance and continuance as group auditor
Dec-2023
In This Section
General considerations of acceptance and continuance as group auditor
Responsibility for performing an acceptance and continuance assessment for the group engagement
Reasonable expectation to obtain sufficient appropriate audit evidence
OAG Guidance
Detailed guidance relating to acceptance and continuance is included in OAG Audit 3011. This section provides additional guidance for group audits.
CAS Requirement
In applying CAS 220, the group engagement partner shall determine whether sufficient appropriate audit evidence can reasonably be expected to be obtained in relation to the consolidation process and the financial information of the components on which to base the group audit opinion. For this purpose, the group engagement team shall obtain an understanding of the group, its components, and their environments that is sufficient to identify components that are likely to be significant components. Where component auditors will perform work on the financial information of such components, the group engagement partner shall evaluate whether the group engagement team will be able to be involved in the work of those component auditors to the extent necessary to obtain sufficient appropriate audit evidence. (CAS 600.12)
The engagement partner shall take into account information obtained in the acceptance and continuance process in planning and performing the audit engagement in accordance with the CASs and complying with the requirements of this CAS. (CAS 220.23)
If the engagement team becomes aware of information that may have caused the firm to decline the audit engagement had that information been known by the firm prior to accepting or continuing the client relationship or specific engagement, the engagement partner shall communicate that information promptly to the firm, so that the firm and the engagement partner can take the necessary action. (CAS 220.24)
OAG Guidance
The group engagement leader, in consultation with others, where appropriate, makes the decision to accept or continue the group engagement as a whole.
In deciding whether to accept or continue the group engagement, the group engagement leader:
- Obtains an understanding of the group, its components, and their environments.
- Determines whether sufficient appropriate audit evidence can reasonably be expected to be obtained in relation to the consolidation process and the financial information of the components on which to base the group audit opinion.
- Evaluates whether the group engagement team will be able to be sufficiently involved in the work performed by component auditors.
The information obtained in the acceptance and continuance process is taken into account in planning and performing the group audit engagement and assists the group engagement leader in making informed decisions about appropriate courses of action. For example:
- The information obtained during the assessment process may help the group engagement leader and team identify significant risks.
- The information about changes in the entity or in the industry in which the entity operates may affect decisions regarding the resources required and the manner in which the work of the group engagement team and component auditors will be directed, supervised and reviewed.
- The information about the group may be relevant to the identification and understanding of components and their environments and the manner in which the component auditors' work will be directed, supervised and reviewed.
If information is obtained during the audit process that would have changed the group engagement leader's decision on acceptance or continuance, had it been known at the time of that decision, the group engagement leader shall notify the appropriate individual according to the Office policy set out in OAG Audit 3062.
Refer to OAG Audit 3011 and OAG Audit 3062 for guidance on the acceptance and continuance process and engagement leader's responsibilities with respect to this process.
OAG Guidance
The group engagement leader evaluates whether the group engagement team will be able to be sufficiently involved in the work performed by component auditors.
When considering accepting a new group engagement, the group engagement leader should give consideration to situations where the OAG would not be performing the majority of the audit work in relation to the consolidated financial statements using indicators of magnitude considered the most appropriate in the circumstances (assets, income, etc.). Identifying these circumstances when seeking final approval for the acceptance of the mandate is considered important as the audit would represent greater risk to the Office.
The evaluation of whether sufficient audit evidence can reasonably be expected to be obtained is based on the most appropriate criteria in the circumstances. Consolidated assets and revenues are normally appropriate to measure participation. In some cases, however, net assets (including any off-balance sheet exposure) and earnings may also be important or even more significant in providing an indication of the relative importance of the part examined by other auditors. Percentage relationships are not always a sufficient measure. For example, a majority percentage of consolidated assets may not be a proper basis for reaching a decision if a substantial part of these assets is represented by intangibles or other assets which do not contribute significantly to operations. A group audit engagement is not accepted or retained simply because OAG examines the majority of the consolidated assets and revenues if other criteria and considerations mean that in reality OAG will have a secondary role.
CAS Requirement
If the group engagement partner concludes that (CAS 600.13)
(a) it will not be possible for the group engagement team to obtain sufficient appropriate audit evidence due to restrictions imposed by group management, and
(b) the possible effect of this inability will result in a disclaimer of opinion on the group financial statements.
the group engagement partner shall either:
(a) in the case of a new engagement, not accept the engagement, or, in the case of a continuing engagement, withdraw from the engagement, where withdrawal is possible under applicable law or regulation; or
(b) where law or regulation prohibits an auditor from declining an engagement or where withdrawal from an engagement is not otherwise possible, having performed the audit of the group financial statements to the extent possible, disclaim an opinion on the group financial statements.
CAS Guidance
Restrictions by Circumstance
The group engagement team’s access to information may be restricted by circumstances that cannot be overcome by group management, for example, laws relating to confidentiality and data privacy, or denial by the component auditor of access to relevant audit documentation sought by the group engagement team. It may also be restricted by group management. (CAS 600.A14)
Where access to information is restricted by circumstances, the group engagement team may still be able to obtain sufficient appropriate audit evidence; however, this is less likely as the significance of the component increases. For example, the group engagement team may not have access to those charged with governance, management, or the auditor (including relevant audit documentation sought by the group engagement team) of a component that is accounted for by the equity method of accounting. If the component is not a significant component, and the group engagement team has a complete set of financial statements of the component, including the auditor’s report thereon, and has access to information kept by group management in relation to that component, the group engagement team may conclude that this information constitutes sufficient appropriate audit evidence in relation to that component. If the component is a significant component, however, the group engagement team will not be able to comply with the requirements of this CAS relevant in the circumstances of the group audit. For example, the group engagement team will not be able to comply with the requirement in paragraphs 30-31 to be involved in the work of the component auditor. The group engagement team will not, therefore, be able to obtain sufficient appropriate audit evidence in relation to that component. The effect of the group engagement team’s inability to obtain sufficient appropriate audit evidence is considered in terms of CAS 705.(CAS 600.A15)
Where law or regulation prohibits access to relevant parts of the audit documentation of the component auditor, the group engagement team may request the component auditor to overcome this by preparing a memorandum that covers the relevant information. (CAS 600.A41)
Restrictions by Group Management
The group engagement team will not be able to obtain sufficient appropriate audit evidence if group management restricts the access of the group engagement team or a component auditor to the information of a significant component. (CAS 600.A16)
Although the group engagement team may be able to obtain sufficient appropriate audit evidence if such restriction relates to a component considered not a significant component, the reason for the restriction may affect the group audit opinion. For example, it may affect the reliability of group management’s responses to the group engagement team’s inquiries and group management’s representations to the group engagement team. (CAS 600.A17)
Where Declining or Withdrawing from an Engagement is Prohibited
Law or regulation may prohibit the group engagement partner from declining or withdrawing from an engagement. For example, in some jurisdictions the auditor is appointed for a specified period of time and is prohibited from withdrawing before the end of that period. Also, in the public sector, the option of declining or withdrawing from an engagement may not be available to the auditor due to the nature of the mandate or public interest considerations. In these circumstances, this CAS still applies to the group audit, and the effect of the group engagement team’s inability to obtain sufficient appropriate audit evidence is considered in terms of CAS 705. (CAS 600.A18)
OAG Guidance
Access to information may be restricted by circumstance and/or by group management. The group engagement team needs to evaluate such restrictions to determine whether sufficient appropriate audit evidence on which to base the group opinion can be obtained, including the impact of such restrictions on the nature, timing and extent of direction, supervision and review of the component auditor.
The engagement team may be able to overcome such restrictions by, for example:
- Visiting the location of the component auditor, or meeting with the component auditor in a location different from where the component auditor is located, to review the component auditor's audit documentation.
- Reviewing the relevant audit documentation remotely through the use of technology.
- Requesting the component auditor to prepare and provide a memorandum that addresses the relevant information and holding discussions with the component auditor, if necessary, to discuss the contents of the memorandum.
- Discussing with the component auditor the procedures performed, the evidence obtained and the conclusions reached by the component auditor.
The group engagement leader exercises professional judgment to determine whether one or more of the actions above are sufficient to overcome the restrictions.
OAG Audit 2324 includes guidance where the group has limited or no control over significant components.
CAS Guidance
A group may consist only of components not considered significant components. In these circumstances, the group engagement partner can reasonably expect to obtain sufficient appropriate audit evidence on which to base the group audit opinion if the group engagement team will be able to (CAS 600.A13)
(a) perform the work on the financial information of some of these components, and
(b) be involved in the work performed by component auditors on the financial information of other components to the extent necessary to obtain sufficient appropriate audit evidence.
OAG Guidance
See OAG Audit 2335 for further guidance on the nature of work to perform.