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SA 600 vis-á-vis ISA 600 on Using the work of another auditor
Companies expanding through acquisitions will generally have a lot of subsidiaries. These companies are required to prepare their standalone financial statements as well as consolidated financial statements of the group. The consolidated financial statements would include results of subsidiaries, associates, and joint ventures which might have been audited by an auditor other than the auditor of the holding company. This is one such instance where the auditor of the holding company would have to rely on the work performed by another auditor. The standards relating to this are laid down in SA 600 (in the Indian context) and the International Standard on Auditing 600. At the outset, it is important to note that SA 600 was issued in 2002, and the same version is used in India to date. ISA 600, earlier amended in 2009, has been replaced by a new version issued in 2022.
Overview of SA 600
SA 600 deals with the responsibility of the principal auditor while using the work of another auditor (component auditor). The principal auditor is required to perform audit procedures to obtain sufficient and appropriate audit evidence to determine that the work of the component auditor is adequate for his purpose. This is generally done by active communication between the two auditors throughout the audit. The principal auditor sends the Group Audit instructions to the component auditor. These instructions include a docket of documents providing general instructions as well as questionnaire which the component auditor is required to answer. The principal auditor informs the component auditor about the work being used for the purpose of the principal auditor's opinion on the consolidated financial statements. The principal auditor would generally review a written summary of the component auditor's procedures and findings. Significant findings of the component auditor are considered by the principal auditor while forming his opinion on the consolidated financial statements.
Further developments in ISA 600
There have been two major revisions in ISA 600, one in 2009 and the other recently in 2022. The latest version of ISA 600 includes the requirements that align with recently revised standards such as the International Standard on Quality Management (ISQM) 11 on 'Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements’ and ISA 315 on Identifying and assessing the risk of material misstatement. This alignment ensures a greater focus on the risk-based approach to the audit. ISA 600 also clarifies the application of the concept of materiality and aggregation of risk in the context of group audits. A principal auditor would generally communicate the component materiality to the component auditor. SA 600 has no guidance on computation of such component materiality. ISA 600 also deals extensively with the need to reinforce effective two-way communication between the principal and component auditor. Since ISA 600 adopts a principle-based approach it is scalable for smaller audits. The scope of ISA 600 has been increased to cover branches, divisions, shared service centers, and non-controlled entities.
- ISQM 1 replaced the International Standard on Quality Control (ISQC) 1.
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Our Comments
The Institute of Chartered Accountants of India (ICAI) is working on making the amendments to SA 600 and also working on amendments to bring SQM 1 to replace SQC 1. These amendments will help the Indian auditing profession to remain up to date with global developments and will also go a long way in providing a value addition to the readers of audited financial statements.
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