Page 263 - CA Final PARAM Digital Book.

applicable.
The auditor should also validate the requirement of preparation of CFS for the company as
per applicable financial reporting framework.

QNO Relevance of SA 600- Old Course – (N15E, N17R, N18E,M22E)
442.000 TITANIUM CNO— GA.120 New Course -- (SM23)
CA H was appointed as a Statutory Auditor of MNL Limited, a listed company, which has three
subsidiaries namely M Ltd., N Ltd., L Ltd. and also 15 branches across India. Auditors are duly appointed
for the subsidiaries and branches as well. With regard to the determination of materiality during the
audit of consolidated financial statements, what should be the considerations of CA H? How he should
deal in his report if there are observations (for instance modification and/or emphasis of matter in
accordance with SA 705/706) made by component auditors?
OR

Describe the relevance of SA 600 while auditing consolidation of Financial Statements
OR
What is meant by “Group financial statements”? Give reference of relevant Auditing Standard and issues
addressed concerning the audit of Group financial statements.
OR
What is meant by “Group financial statements”? Give reference of relevant Auditing Standard and issues
addressed concerning the audit of Group financial statements.
Answer Part I -- Relevant Standards & Laws
▪ SA 600 “Using the work of Another Auditor”

Part II -- Requirements of Relevant Standards & Laws
➢ SA 600 and its relevance –
Standard on Auditing (SA) 600, ‘Using the Work of Another Auditor’ establishes standards when
an auditor, reporting on the financial statements of an entity (the group—in the case of
consolidated financial statements), uses the work of another auditor on the financial information
of one or more components included in the financial statements of the entity.

The principal auditor, if he decides to use the work of another auditor in relation to the audit of
consolidated financial statements, should comply with the requirements of SA 600.

➢ Determination of materiality during the audit of consolidated financial statements
In carrying out the audit of the standalone financial statements, the computation of materiality for
the purpose of issuing an opinion on the standalone financial statements of each component
would be done component-wise on a standalone basis. However, with regard to determination of
materiality during the audit of consolidated financial statements (CFS), the auditor should consider
the following:
The auditor is required to compute the materiality for the group as a whole. This
materiality should be used to assess the appropriateness of the consolidation adjustments
(i.e. permanent consolidation adjustments and current period consolidation adjustments)
that are made by the management in the preparation of CFS
The parent auditor can also use the materiality computed on the group level to determine
whether the component's financial statements are material to the group to determine
whether they should scope in additional components and consider using the work of other
auditors as applicable.

However, while considering the observations (for instance modification and /or emphasis of
matter in accordance with SA 705/706) of the component auditor in his report on the standalone
financial statements, the QNO of materiality would be considered.

Thus, the component auditor’s observation, if any, on the components financial statement,
irrespective of whether the auditor of the component are also the auditor of CFS or not, are
required to be included in the parent audit report of Consolidated financial statement only if
material for the group.
Author’s Note

# Mistake point

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