ISA 600 (Revised): what it means for group audits

ISA 600 (Revised) is effective for audits of financial statements commencing for periods on or after 15 December 2023. For most companies, this means the new standard will apply for the first time to financial year-ends on 31 December 2024.

 

The revisions bring significant changes, with a focus on a risk-based approach to group audits. Here’s what’s new:

 

  1. An emphasis on a wider engagement team with component auditors being part of the group engagement
  2. A bigger emphasis to a risk-based approach for group audits and more rigorous risk assessment at group level
  3. A revised definition of a component, requiring auditors to assess aggregation risk
  4. Enhanced documentation requirements for auditors at the group level
  5. A requirement to have access to component audit working paper files to form part of the group audit file
  6. Scalable requirements depending on the size and complexity of the group.
  7. A greater emphasis on robust two-way communication between group and component auditors.
What This Means for Auditors

ISA 600 (Revised) introduces several changes that will reshape how auditors approach group audits. The standard places a stronger emphasis on assessing risks at both the group and component levels while improving communication and documentation.

 

These revisions aim to enhance audit quality and transparency, bringing new considerations for auditors:

 

  • Separate work on parent and group – Auditors must undertake distinct work for the parent entity and the group as a whole.
  • Component auditors as part of the engagement team – The component auditor is now formally integrated into the group audit engagement team.
  • Materiality considerations – Component performance materiality must be determined for each component where audit procedures are performed on disaggregated financial information.
  • Overseas subsidiaries and additional work – Where subsidiaries have different management or operate in different jurisdictions, group auditors must gain a full understanding of the components. If the overseas auditor’s work cannot be used— due to language barriers, for example—this could lead to additional audit work at the group level.
  • More robust documentation – Audit files must now be more detailed and comprehensive than ever before and the group audit file must be able to be looked at on a standalone basis

 

What This Means for Companies

Companies will need to reassess their audit processes to align with the new requirements under ISA 600 (Revised). Auditors will now take a more rigorous approach, which means businesses must be prepared for greater scrutiny and increased documentation demands.

 

These changes may also lead to shifts in how companies coordinate with auditors across different jurisdictions, affecting overall audit efficiency. Key impacts include:

 

  • More questions and documentation requests – Auditors will need additional information to meet the enhanced requirements.
  • Higher group audit fees – While these changes are designed to improve audit quality, they will inevitably require more time, leading to increased costs.
  • Proactive planning can help manage costs – Companies can take steps to minimise the impact of these changes on audit fees:
    • Speak to auditors early to understand the new requirements and prepare accordingly.
    • Consider whether using the same auditor for both the group and its components—or a firm within the same network—could be beneficial.

 

At Gravita, we act as both group auditor and component auditor for a significant number of businesses. If you’d like further information or assistance in preparing for ISA 600 (Revised), please get in touch with Jenny Cessini.

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