2343 Communicating results at completion to group engagement team

Oct-2012

OAG Guidance

Other matters to be reported by the component auditor to the group engagement team are:

• description of significant risks identified at the component that may affect the group financial statements and a summary of the component auditor's responses to those risks and the results thereof (OAG Audit 2331);
• a list of significant fraud risk factors, the auditor's response and the results of the auditor's related procedures applied (OAG Audit 5502);
• proposed adjustments booked by management, with comments of component management on uncorrected and corrected misstatements of the financial information of the component (OAG Audit 9010); and
• report on significant and other matters reported in accordance with CAS 600.41 (h) and (i) (including summary of uncorrected misstatements, significant accounting, financial reporting, auditing or taxation matters) need to include the action taken and basis for conclusion reached; any additional evidence obtained; results of consultations with others; and information identified that is inconsistent with or contradicts the component auditor's final conclusion concerning the matter (OAG Audit 1141).

Note: a list of significant matters alone is not sufficient to fulfill this requirement, as the group engagement partner must be able to understand the matter, the audit work performed, the evidence obtained and the conclusions reached.

Matters such as the following may also be communicated to the extent relevant:

• Matters that have caused a significant change in the scope of the audit.
• Specific representations for inclusion in the group letter of representation.
• Matters relating to the going concern status of the component.
• Matters relating to litigation and claims.
• Matters relating to other regulatory requirements e.g., compliance with authorities audit procedures results.
• Coordination with internal auditors.
• Reports issued by component auditor e.g., internal control memorandum, statutory audit report etc.
• Communication with those charged with governance of the component, or matters to be communicated with those charged with governance of the group (OAG Audit 2344).
• Any findings affecting the consolidating or combining of accounts in the consolidated financial statements, including matters such as:
  • Those relating to accounting policies, especially changes from the prior year.
  • Failure of the financial statements to meet disclosure requirements applicable to the audit areas.
• Sufficient information to enable the group engagement team to agree or to reconcile the financial statement amounts audited by the component auditor to the information underlying the consolidated financial statements.
• Letters of representation from management, and any specific representation for inclusion in the group representation letter.

The group engagement team needs to obtain, and review and retain, such documents prior to the date of the group audit report.

An Interoffice Letter of Instruction template, which includes a Memorandum of Work Performed, incorporating the required and other suggested topics to be communicated by the component auditor is included on the INTRAnet.

The component auditor communicates to the group engagement team in accordance with the reporting protocols determined at the commencement of the audit. Component auditors need to make component management aware of the reporting procedures established for communicating findings.

OAG Guidance

Specific representations for inclusion in the group letter of representation

It is the responsibility of the group engagement team to obtain group management's representation in respect of the group audit. However, if a component auditor requires representations from group management on a specific matter, it is the responsibility of the component auditor to so advise the group engagement team.

Component auditors would ordinarily communicate their requirements for specific representations in their Memorandum of Work Performed. However, the nature of matters requiring specific representations may be such that they could have a material impact on the group financial statements. Communication between the component auditor and the group engagement team is therefore essential in ensuring that potentially unusual or troublesome circumstances are communicated as soon as it is practicable.

Component management representations

Apart from communicating specific matters to be included in the group representation letter, component auditors may need to obtain representations from component management.

Where the component auditor issues a separate audit report on the audit of the component's financial statements (e.g., for statutory audit purposes), written representations are to be obtained from component management in accordance with CAS 580 (OAG Audit 9050).

Where no separate audit report (e.g., for statutory audit purposes) is issued, the need for and nature of representations from component management will depend on such matters as the nature of work performed, the structure of the group, and instructions from the group engagement team.

For instance, if the component auditor performs specified procedures or an audit of one or more account balances only, it would normally not be necessary to request the component management to provide all the representations required by CAS 580.

On the other hand, if the component auditor performs an audit of the component's financial statements or special purpose financial information such as standard reporting forms, the component auditor needs to be satisfied that appropriate representations have been obtained (our audit report asserts we have conducted the audit in accordance with CASs or other relevant auditing standards). Such representations would ordinarily be obtained from component management, but there may be circumstances where they could be obtained from management at a different level within the group (e.g., regional or functional management).

Discussions between the group and component auditors will often be helpful in determining the appropriate source of management representation. If no management representations have been obtained, the Memorandum of Work Performed should be appropriately modified to reflect this restriction in scope.

Where a statutory report is issued we need to consider how the timing of issuance of our Memorandum of Work Performed will influence the above guidance. Either the representations obtained for statutory purposes will satisfy in a timely way the requirement for suitable representation to support our overall findings, conclusions, or opinion in our Memorandum of Work Performed, or appropriate representation will first be needed as above to support our overall findings, conclusions, or opinion, to be updated or supplemented as necessary if a statutory report is subsequently issued. Representations would ordinarily be obtained close to the time that our Memorandum of Work Performed is issued, to avoid the risk that they become out of date.