2340.1 Planned Direction and Supervision of Component Auditors and Review of Their Work

Dec-2023

CAS Guidance

Although component auditors may perform work on the financial information of the components for the group audit and as such are responsible for their overall findings, conclusions or opinions, the group engagement partner or the group engagement partner's firm is responsible for the group audit opinion (CAS 600.A8).

The approach to the direction and supervision of the members of the engagement team and the review of their work provides support for the engagement partner in fulfilling the requirements of this CAS, and in concluding that the engagement partner has been sufficiently and appropriately involved throughout the audit engagement in accordance with CAS 220.40 (CAS 220.A83).

OAG Guidance

Effective and efficient group audits are most likely to result when both the group engagement team and component auditors have an appropriate understanding of the engagement and are sufficiently involved in the development of an audit strategy and plan that is appropriately responsive to the risks, circumstances and changes in the group and its environment.

The group engagement team complies with the requirements of CAS 220 in performing and documenting the work that will underlie the group auditor's report that it will issue. This compliance is achieved through a combination of:

• Identifying, planning and agreeing with component auditors the areas of the group engagement team's involvement during each phase of the audit.

• Directing and supervising component auditors and reviewing their work and adjusting the nature, timing and extent of direction, supervision and review, as appropriate based on changes in engagement circumstances.

• Complying with the requirements of CAS 220 as it relates to areas of the audit for which the group engagement team will obtain the audit evidence directly.

• Relying on the system of quality management (SoQM), including consideration of inspection results, when the component auditor is another OAG teams.

CAS 220 requires the engagement leader to determine the nature, timing and extent of direction and supervision of engagement team members and review of their work is planned and performed. In a group audit engagement, component auditors are considered to be part of the 'engagement team' and therefore the group engagement leader's responsibility extends to component auditors. Examples of the ways in which the group engagement team directs and supervises the component auditors and reviews their work include:

• Participating in discussions and decisions relating to significant judgments in areas such as risk assessment and determining the audit strategy and plan.

• Issuing instructions to component auditors and reviewing the Acknowledgment of Receipt of Instructions. Clear instructions before the commencement of the group audit help to set expectations for the component auditor's work and facilitate the group engagement team's direction, supervision, and review of the work.

• Communicating with component auditors throughout the course of the group audit. These ongoing communications include matters affecting the planning, execution, completion and reporting of the group audit.

• Reviewing, based on the group engagement team's judgment and group audit strategy and plan, relevant audit work and related documentation of the component auditor. The review of the work and related documentation by the group engagement leader and team takes place throughout the engagement. The group engagement team may perform an on-site or virtual review of component auditor working papers and other documentation.

• Reviewing, based on the judgment of the group engagement leader, formal written communications prepared for component management, those charged with governance of the component and/or regulatory authorities of the component, that are relevant to the group audit (as discussed in OAG Audit 2344)

The component auditor complies with the requirements of CAS 220 in performing and documenting the work that will underlie the interoffice report they will issue to the group auditor. The component auditor's compliance with CAS 220 is achieved through a combination of:

• Fulfilling the engagement leader responsibilities as described in OAG Audit 3062.

• Direction and supervision of members of the component engagement team and review of their work by the component engagement leader and other more experienced members of the component engagement team.

• Reliance on the SoQM of the Office (refer to OAG Audit 3062 for further guidance).

The procedures performed by the group engagement team in directing and supervising the work of component auditors and reviewing the component auditor's work in no way reduce or mitigate the component auditor's responsibility to the group engagement team for the quality of the work undertaken.

Determining the nature, timing and extent of direction, supervision and review

The nature, timing and extent of the group engagement team's direction and supervision of component auditor's work and review of their work is a matter of professional judgment and is determined by the group engagement leader with the involvement of more experienced engagement team members. The following factors may be relevant in making judgments about the nature, timing and extent of direction, supervision and review, although this list is not exhaustive as there may be other considerations, including circumstances arising during the course of an engagement:

• Previous experience working with the component engagement leader and team

The group engagement team's direction, supervision and review may be tailored depending on the component auditor's previous experience. For example, the group engagement team may change the nature and extent of their direction, supervision and review if a significant portion of the component engagement team has not turned over from the prior year, or may vary their direction, supervision and review depending on the component auditor's level of expertise regarding the component entity's industry and/or financial reporting framework.

• Ability for the group engagement team to obtain access to the working papers and other documentation of the component auditor, and/or perform an on-site review of relevant component auditor working papers and other documentation

In order to facilitate the group engagement team's direction, supervision and review responsibilities, the group engagement team may request that component auditors provide the group engagement team with read-only access to the audit file, and any other working papers related to the engagement. Where access to the working papers of the component auditor is prohibited (i.e., granting electronic access to the audit file is not permitted by legal, regulatory or other professional obligations), but the engagement is accepted, the group engagement team needs to consider the nature of the access it will obtain to the working papers in order to be sufficiently and appropriately involved with the direction and supervision of the component auditor and the review of their work and to enable the group engagement team to take overall responsibility for managing and achieving audit quality.

•  Assessed risks of material misstatement

For example, more extensive direction, supervision and review by the group engagement leader and team may be appropriate in the areas of elevated or significant risk.

Related Guidance

Guidance on the engagement leader's responsibility for direction and supervision of the engagement team and review of their work is included in OAG Audit 3062.