2322 Obtaining an understanding of the group as part of A&C
Oct-2012

Overview

This section discusses:

  • General considerations of understanding the entity in group audits
  • Additional considerations for new engagements
  • Additional considerations for continuing engagements
General considerations of understanding the entity in group audits

CAS Requirement

In applying CAS 220, 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. (CAS 600.12).

OAG Guidance

Detailed guidance relating to understanding the business is included in OAG Audit 3011.This section provides additional guidance for group audits.

Guidance on identifying components is included in OAG Audit 2323.

The understanding for acceptance and continuance is of a lesser extent than that necessary for understanding the business obtained as part of our audit risk assessment procedures as discussed in OAG Audit 2331.

Additional considerations for new group engagements

CAS Guidance

In the case of a new engagement, the group engagement team’s understanding of the group, its components, and their environments may be obtained from (CAS 600.A10):

  • information provided by group management;
  • communication with group management; and
  • where applicable, communication with the previous group engagement team, component management, or component auditors.

The group engagement team’s understanding may include matters such as the following (CAS 600.A11):

  • The group structure, including both the legal and organizational structure (i.e., how the group financial reporting system is organized).
  • Components’ business activities that are significant to the group, including the industry and regulatory, economic and political environments in which those activities take place.
  • The use of service organizations, including shared service centers.
  • A description of group-wide controls.
  • The complexity of the consolidation process.
  • Whether component auditors that are not from the group engagement partner’s firm or network will perform work on the financial information of any of the components, and group management’s rationale for appointing more than one auditor.
  • Whether the group engagement team:
    • will have unrestricted access to those charged with governance of the group, group management, those charged with governance of the component, component management, component information, and the component auditors (including relevant audit documentation sought by the group engagement team); and
    • will be able to perform necessary work on the financial information of the components.
Additional considerations for continuing group engagements

CAS Guidance

In the case of a continuing engagement, the group engagement team’s ability to obtain sufficient appropriate audit evidence may be affected by significant changes, for example (CAS 600.A12):

  • Changes in the group structure (e.g., acquisitions, disposals, reorganizations, or changes in how the group financial reporting system is organized).
  • Changes in components’ business activities that are significant to the group.
  • Changes in the composition of those charged with governance of the group, group management, or key management of significant components.
  • Concerns the group engagement team has with regard to the integrity and competence of group or component management.
  • Changes in group-wide controls.
  • Changes in the applicable financial reporting framework.

OAG Guidance

Consider changes to the use of service organizations, including shared service centers.