Proposed ISA 600 (Revised) deals with special considerations for audits of group financial statements (group audits).

The standards-setter says group audits are often more complex and challenging than single-entity audits because a group may have many entities or business units across multiple jurisdictions, and component auditors may be involved.

The proposed standard introduces an enhanced risk-based approach to planning and performing a group audit, with a focus on identifying and assessing the risks of material misstatement of the group financial statements, and designing and performing further audit procedures to respond to those assessed risks.

Given that component auditors can be, and often are, involved in all phases of a group audit, the proposed standard highlights the importance of the group engagement team’s involvement in the component auditor’s work.

In addition, the amendments include clarifying the scope and applicability of the standard, and establishes stronger linkages to the other ISAs, in particular to proposed ISA 220 (Revised), ISA 315 (Revised 2019) and ISA 330, where they relate to audit quality, material misstatements and assessed risks.

The revisions emphasise the importance of exercising professional scepticism throughout the group audit, and the need for robust communication and interactions between the group engagement team, group engagement partner and component auditors.

The standard includes new guidance on testing common controls and controls related to centralised activities, as well as enhanced guidance on how to address restrictions on access to people and information.

It also enhances special considerations in other areas of a group audit, including materiality and documentation.

Tom Seidenstein, IAASB chair, said: ‘This proposed standard is critically important as many of today’s audits are group audits, including audits of the largest and most complex organisations around the world.

‘The proposed revised standard addresses quality risk issues identified by audit regulators and benefits from the input of a wide range of stakeholders.’

The Financial Reporting Council (FRC) welcomed the release of the exposure draft, saying the proposed revisions enhance the risk-based approach to undertaking a group audit and reinforce the need for robust communication and interactions between the group engagement team, group engagement partner and component auditors.

The FRC said it also supported the IESBA proposals to revise the independence standards so that they are more ‘robust, comprehensive and clear when applied in a group audit context’, including IESBA proposals to clarify the requirements for non-network component auditors.

The regulator said this is an area of significant importance when applying both the current and proposed ISA 600 to engagements which are conducted across jurisdictions with potentially differing ethical requirements, and will bring international standards into line with the FRC’s own ethical standard.

Mark Babington, FRC acting executive director of regulatory standards, said: ‘The UK supports the development of high-quality global standards for corporate reporting and audit, enabling the UK to attract high quality global investment. 

‘The proposed standard includes a comprehensive and principles-based approach to delivering group audits that meets the needs of users and protects the public interest’.

The normal 120-day comment period for public consultations has been extended in light of the impact of Covid-19. The deadline for comments is 2 October.

ISA 660 (revised), special considerations – audits of group financial statements