Discussion

 topics  
Implica4on  
Ma8ers  to  
for  the  
be  
Ma8ers  to  be   auditor’s  
considered  
considered   report  on  a  
and  
Requirements   before   Rela4onship   financial  
procedures  
of  relevant   accep4ng   between   statements  
to  be  
accoun4ng   appointment   principal  and   of  an  en4ty  
performed  
standards   as  Principal   other  auditors   where  the  
when  using  
Auditor  of  a   opinion  on  
the  work  of  
group   a  
other  
component  
auditors  
is  modified  
  
 I  
N  
T   Auditor  for  the  holding  company  
(principal/primary  auditor)  is  
Companies  frequently  have  
R   subsidiary  companies.  Holding   required  to  express  an  opinion  
as  to  whether  the  company  
company  is  required  to  
O   prepare  group  account  in  the   accounts  and  the  group  account  
show  a  true  and  fair  view  to  the  
form  of  consolidated  accounts.  
D   members  of  the  holding  
company  
U  
C   In  audi4ng  group  accounts,  
auditor  is  required  to  possess  
~  Companies  Act  1965  (sec  174)  
~  FRS  127  –  Consolidated  and  
an  appropriate  related  
T   knowledge  about  accoun4ng   Separate  Financial  Statements  
(Consolida4on),  regula4ons   ~  FRS  128  –  Investments  in  
 I   and  standards  (Disclosure)   Associates    

O  
N  
 •  Is  the  auditor  with  responsibility  for  repor4ng  on  the  
financial   statements   of   an   en4ty   where   those  
Principal   financial   statements   include   financial   informa4on   of  
Auditor   one  or  more  components  audited  by  another  auditor.  

•  Means  a  division,  branch,  subsidiary,  joint  venture,  associated  

company  or  other  en4ty  whose  financial  informa4on  included  
Components   in  the  financial  statements  audited  by  the  principal  auditor.  

•  An  auditor,  other  than  principal  auditor  with  responsibility  for  

repor4ng  on  the  financial  informa4on  of  a  component  which  
Another   included  in  the  financial  statement  audited  by  principal  auditor.  
auditor   Other  auditor  include  affiliated  firm  and  unrelated  auditors.    
Responsible  

•  Auditor  is  responsible  to  perform  the  audit  and  give  opinion  on  
the  consolida4on  account  under  Sec4on  174  (2)  

Rights  of  principal  auditor  under  Sec4on  174(4)  &  (5)  enable  the  
principal  auditor  to  undertake  his  responsibili4es  by  empowering  the  
following  rights:-­‐  
•  Access  to  the  accoun4ng  and  other  records  of  the  company  and  
any  subsidiary  of  the  company  
•  Require  from  any  other  auditor  of  related  company  for  any  
informa4on  and  explana4ons  required  for  the  audit  
•  Require  from  any  officer  of  the  parent  company  and  the  officer  of  
the  related  company  (foreign  and  local)  to  get  the  informa4on  &  
explana4ons  required  for  the  audit  
If  the  same  auditor  for  the  holding  and  subsidiary  being  appointed,  
the  auditor  need  not  to  have  separate  engagement  le8er  but  must  get  
the  confirma4on  from  BOD  of  each  company.  (Directors’  resolu4on)  

In  order  to  accept  the  appointment  the  Principal  Auditor  should  

consider  (important  because  he  will  be  fully  responsible):  
•  Materiality  of  the  por4on  of  the  financial  statements  which  the  
principal  auditor  audit  
•  The  principal  auditor’s  knowledge  of  the  business  of  the  component    
•  Risk  of  material  misstatement  in  the  financial  statement  of  the  
component,  audited  by  other  auditors  
•  The  extent  of  the  addi4onal  audit  procedures  by  principal  auditor  
•  Competence  of  other  auditors  also  need  to  be  considered  
 AI  600  
The  principal  auditor  should  lead  the  
 When  the  principal  auditor  uses  the   planning  especially  the  4ming  of  the  
work  of  another  auditor,  the   group  audit,  the  specific  risk  area  and  
principal  auditor  should  determine   audit  procedures,  inter-­‐company  
how  work  of  the  other  auditor  will   balances  etc.  
affect  the  audit.  

USING  THE  WORK  OF  OTHER  AUDITORS  

The  other  auditor  should  corporate  
with  the  principal  auditor.  For  
The  principal  to  discuss  with  other   example,  to  advise  principal  auditor  
auditor  to  synchronize  the  audit   for  any  significant  event  that  may  
work.     have  an  important  impact  on  the  
audit  of  consolidated  financial  
  statements.  Or  may  be  to  inform  the  
  principal  auditor  any  ma8er  that  has  
not  been  carried  out  as  requested..  
 
The  principal  auditor  need  to  sa4sfy  that  all  material  areas  of  the  financial  
statements  of  the  subsidiaries  have  been  audited  sa4sfactorily.  

In  evalua4ng  the  work  of  other  auditor,  the  principal  

auditors  would  advise  the  other  auditor  about:  
The  independent  requirements  and  obtained  from  the  other  auditors  a  
wri8en  representa4on  that  they  have  complied  with  independence  issues  

The  accoun4ng,  audi4ng  and  repor4ng  requirement  and  obtained  from  the  
other  auditor  a  wri8en  representa4on  that  the  have  complied  with  
accoun4ng,  audi4ng  and  repor4ng  requirement.  

The  principal  auditor  would  inform  the  other  auditor  of  ma8ers  such  as  
areas  requiring  special  considera4on,  procedures  for  iden4fica4on  of  inter-­‐
company  transac4on  for  disclosure  and  also  4metable  for  comple4on  of  
the  audit.  

Principal  auditor  should  review  the  audit  procedures  applied,  review  a  

wri8en  representa4on  of  the  other  auditor  and  review  working  paper  of  
other  auditor..  
 Once  reliability  of  the  work  carried  out  by  the  other  auditor  is  in  ques4on,  
the  principal  auditor  should  perform  a  detailed  review  of  the  other  auditor’s  
working  paper  and  give  a8en4on  on:-­‐  
Existence  of  proper  documenta4on  of  audit  
work  carried  out  by  the  other  auditor  

Adequacy  of  the  audit  programmes  

Scope  of  work  covered  by  the  other  auditor  

Whether  appropriate  test  of  control  and  substan4ve  

procedures  have  been  performed  

Whether  adequate  audit  evidence  are  obtained  

Whether  work  carried  out  by  engagement  team  are  

being  adequately  reviewed  

If  the  principal  auditor  is  not  sa4sfied  with  the  working  paper,  the  principal  auditor  
might  request  the  other  auditor  to  perform  the  supplementary  tests  or  
alterna4vely,  the  principal  auditor  might  need  to  perform  the  test…    
 The  scope  of  work  of  the  principal  auditor  is  depending  on:-­‐  

1.  Scope  of  work  of  other  

auditor,  in  term  of  the  
terms  of  engagement  of   3.  Any  significant  changes  
2.  Any  problem  encounter  
other  auditors,  any   of  component  condi4on,  
in  the  past  
limita4on,  standard  of   business  and  profitability    
work  and  independence  
of  other  auditor  

4.  Materiality  of  component  compared  to  

group  as  a  whole.  Misstatement  in  a  
5.  Inherent  risk   component  may  not  be  material  for  the  
assessment  of  subsidiaries  
group  as  a  whole.  BUT  combina4on  
by  the  principal  auditors  
misstatement  of  a  few  component  might  
be  material…  
 Preliminary  Stage  

Detailed  audit  work  

Ques4onnaires  

Review  of  other  auditors’  

working  papers  
 n  The  principal  auditor  should  perform  procedures  to  obtain  sufficient  
evidence  as  a  basis  for  opinion:    

PRELIMINARY  STAGE  
To  obtain  and  prepare  schedule  of     investment  in  subsidiary  showing:-­‐  

i.  Opening  balance  of  investment  in  subsidiary  

ii.  Addi4onal  or  disposal  of  investment.  Verify  to  minutes  and  other  
document  
iii.  Ending  balance  
iv.  Check  accoun4ng  treatment  for  gain  or  loss  on  disposal  of  disposal  
v.  Confirma4on  the  existence  and  ownership  of  investment  
vi.  Obtained  audited  account  or  management  financial  statement  of  each  
component  
 n  The  principal  auditor  should  perform  procedures  to  obtain  sufficient  
evidence  as  a  basis  for  opinion:    

DETAILED  AUDIT  WORK  

 
Checking  the  consolida4on   figure:-­‐  

i.  Goodwill  or  reverse  arising  on  consolida4on  

ii.  Pre  and  post  acquisi4on  reserve  
iii.  Overall  reconcilia4on  and  movement  
iv.  Calcula4on  of  minority  interest  
v.  Agreement  of  inter  company  balances  
vi.  Adjustment  and  cancella4on  of  inter  company  transac4on  and  balances  
vii.  Proper  use  of  foreign  currency  rate  for  transla4on  
viii.  Make  sure  properly  disclosure  the  necessary  items,  related  party  
transac4on,  company  level,  group  level…..  
n  The  principal  auditor  should  perform  procedures  to  obtain  sufficient  
evidence  as  a  basis  for  opinion:    

QUESTIONNAIRES  
 
Given  to  other  auditor  which  include   confirma4on  regarding:-­‐  

i.  Internal  control  of  subsidiaries  

ii.  Basis  of  accoun4ng  policies  
iii.  Balance  sheet  items  
iv.  Profit  and  loss  items  
v.  Excep4onal  transac4on  involve  director  and  General  ma8er  
vi.  Any  limita4on  of  scope  facing  by  other  auditor  
vii.  Any  qualifica4ons  and  the  reasons  for  them  
n  The  principal  auditor  should  perform  procedures  to  obtain  sufficient  
evidence  as  a  basis  for  opinion:    

REVIEW  OF  OTHER  AUDITORS’  WORKING  PAPERS  

  to  ensure:-­‐  
(if  necessary)  

i.  System  examina4on  and  documenta4on  of  auditor  is  appropriate  

ii.  Test  of  control  and  substan4ve  test  have  been  properly  carried  out  
iii.  Working  paper  is  comprehensive  
iv.  Review  process  of  working  paper  has  properly  been  done.  
v.  The  financial  statement  follow  accoun4ng  standard  
vi.  Audi4ng  carried  accordance  to  approved  audi4ng  standards  
vii.  Adequate  evidence  obtained  as  a  basis  to  form  an  opinion  
viii.  Iden4fy  the  inter  group  transac4on….  
 For  every  finding,  the  
principal  should  properly  
documented:  

Financial  statement  
For  the  every  finding  by  other   of  the  Components    
auditor,  principal  auditor  should  
further  discuss  with  
management  of  the  component  
Significance  of  the  finding  
as  well  as  other  auditor.  If  
to  the  en4ty  as  a  whole  
necessary,  to  perform  addi4onal  
test  (by  the  other  auditor  or  
principal)  to  sa4sfy  themselves  
Names  of  other  auditors    
about  the  issues.  

Audit  procedures  performed  

and  conclusions  reached  of  each  
findings..  
 The  possible  
difficul4es  the  
principal   •  Language  
auditor  may   •  Culture  
face  in  respect   •  Differences  in  accoun4ng  
of  audit  of   and  audi4ng  conven4ons  
foreign   and  legisla4ons  
subsidiaries:-­‐  
 Responsibili4es  of  the  principal  auditor,  is  to  report:-­‐  
•  The  names  of  subsidiaries  of  which  he  has  not  acted  as  auditors  
•  Whether  the  consolidated  accounts  reflect  a  true  and  fair  view  of  the  
group’s  financial  performance  &  posi4on  
•  Whether  he  is  sa4sfied  that  the  account  of  the  subsidiaries  that  are  
consolidated  are  in  the  form  and  content  appropriate  and  proper  for  
the  prepara4on  of  the  consolidated  accounts  
•  Whether  he  has  received  sa4sfactory  informa4on  and  explana4ons  
as  required  
•  Whether  the  auditor’s  report  on  the  accounts  of  any  subsidiary  was  
made  subject  to  any  qualifica4on
Sec 174 (2) (a)
and (b)

Sec 174 (2) (c )

 Report  by  Principal  Auditor  

Unqualified

Qualified  report  
•  When  Principal  auditor  concludes  that  the  work  of  the  other  
auditor  cannot  be  used  and  the  principal  auditor  has  not  
been  able  to  perform  sufficient  addi4onal  procedures  
regarding  the  financial  informa4on  of  the  component,  the  
principal  auditor  should  express:-­‐  
•  Qualified  opinion  (if  not  so  material  and  not  pervasive)  or  
•  Disclaimer  (if  material  and  pervasive)    
 If  other  auditor  issued  qualified  report  on  the  component:-­‐  
•  Principal  auditor  should  consider  the  significance  towards  the  whole  
group:-­‐  
•  If  immaterial  effect  to  the  group,  principal  auditor  may  express  
unqualified  opinion  

•  If  not  so  material  effect  to  the  group  and  not  pervasive,  principal  
auditor  may  express  qualified  opinion  (except  for)  

•  If  significance  (material)  effect  to  the  group  and  pervasive,  principal  

auditor  may  express  disclaimer  (limita4on  of  scope)  or  adverse  
(disagreement)  
END