Issai 1600 PN
Issai 1600 PN
ISSAI 1600 International Organization of Supreme Audit Institutions, INTOSAI. For more information visit
www.issai.org
IN TO SA I
E XP ERIE NT IA MUT UA
EX P ERIEN TIA M UTU A
OM NIBU S P RO DE ST
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This Practice Note in combination with the International Standard on Auditing (ISA) 600 “Special Considerations – Audits of
Group Financial Statements (Including the Work of Component Auditors)” issued by the International Federation of Accountants
(IFAC) constitute ISSAI 1600.
ISSAI 1600
practice note 600
Background
This Practice Note provides supplementary guidance on ISA 600 – Special Considerations― Audits
of Group Financial Statements (Including the Work of Component Auditors). It is read together with
the ISA. ISA 600 is effective for audits of group financial statements for periods beginning on or after
December 15, 2009. The Practice Note is effective the same date as the ISA.
An auditor may find ISA 600, adapted as necessary in the circumstances, useful when that auditor
involves other auditors in the audit of financial statements that are not group financial statements. For
example, an auditor may involve another auditor to observe the inventory count or inspect physical fixed
assets at a remote location.
A component auditor may be required by statute, regulation or for another reason, to express an audit
opinion on the financial statements of a component. The group engagement team may decide to use the
audit evidence on which the audit opinion on the financial statements of the component is based to pro-
vide audit evidence for the group audit, but the requirements of ISA 600 nevertheless apply.
In accordance with ISA 2202, the group engagement partner is required to be satisfied that those per-
forming the group audit engagement, including component auditors, collectively have the appropriate
competence and capabilities. The group engagement partner is also responsible for the direction, super-
vision and performance of the group audit engagement.
The group engagement partner applies the requirements of ISA 2202 regardless of whether the group en-
gagement team or a component auditor performs the work on the financial information of a component.
ISA 600 assists the group engagement partner to meet the requirements of ISA 2202 where component
auditors perform work on the financial information of components.
1 All Practice Notes are considered together with ISSAI 1000, “General Introduction to the INTOSAI Financial Audit Guidelines.”
2 ISA 220, “Quality Control for an Audit of Financial Statements.” paragraphs 14 and 15.
Audit risk is a function of the risk of material misstatement of the financial statements and the risk that
the auditor will not detect such misstatements3. In a group audit, this includes the risk that the compo-
nent auditor may not detect a misstatement in the financial information of the component that could
cause a material misstatement of the group financial statements, and the risk that the group engagement
team may not detect this misstatement. ISA 600 explains the matters that the group engagement team
considers when determining the nature, timing and extent of its involvement in the risk assessment pro-
cedures and further audit procedures performed by the component auditors on the financial information
of the components. The purpose of this involvement is to obtain sufficient appropriate audit evidence on
which to base the audit opinion on the group financial statements.
P2. ISA 600 is applicable to auditors of public sector entities in their role as auditors of the group
financial statements.
P3. In some public sector environments it may be required by law or regulation or common practice
to make reference to a component auditor in the group auditor’s report on the group financial
statements. In these situations, if the group auditors’ report does not clearly indicate that the ref-
erence does not diminish the group auditors’ responsibility for the group audit opinion, the audit
is not in compliance with paragraph 11 of the ISA.
P4. Public sector group auditors, who refer to a component auditor in the group auditors’ report,
without making such indication of responsibility as described in paragraph 11 of the ISA, are
advised to seek guidance from other sources, such as national auditing standards and other gener-
ally accepted sources. These other sources may direct the public sector group auditor to inquire
about the professional reputation and independence of the component auditor and to develop
appropriate measures to assure the coordination of activities with those of the component auditor
3 ISA 200, “Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing.” paragraph A32.
in order to achieve a proper review of matters affecting the consolidation process for the group
financial statements.
Overall Considerations
P5. The objectives of a financial audit in the public sector are often broader than expressing an opin-
ion whether the financial statements have been prepared, in all material respects, in accordance
with the applicable financial reporting framework (i.e. the scope of the ISAs). The objectives may
include additional auditing and reporting objectives related to, for example, compliance with au-
thorities including budgets and accountability frameworks, and/or effectiveness of internal con-
trol. The audit mandate, or obligations arising from legislation, regulation, ministerial directives,
government policy requirements, or resolutions of the legislature, may result in additional report-
ing requirements. However, even where there are no such additional reporting requirements,
there may be public expectations in regard to compliance with authorities or to the effectiveness
of internal controls, and the auditor’s attention to such matters. Therefore, public sector group
auditors keep such expectations in mind, are alert throughout the audit to areas that may give rise
to such non-compliance and communicate with component auditors regarding such expectations.
Definitions
P6. When considering the definitions in paragraph 9 of the ISA, in addition to referring to the guid-
ance in paragraphs A2 to A4 of the ISA, additional characteristics may apply in the public sector
as follows;
(a) Component- In a public sector environment, components may also include agencies, depart-
ments, bureaus, corporations, funds, component units, districts, joint ventures and non-gov-
ernmental organizations; and
(b) Significant Component- In a public sector environment the determination of significant
components may also involve matters that have heightened public sensitivity, such as national
security issues, donor funded projects or the reporting on tax revenue.
P8. When complying with the requirements of paragraph 13 of the ISA, in addition to referring to
the guidance in paragraph A18 of the ISA, public sector group auditors may communicate with
the legislature or other regulatory bodies as appropriate, about removing restrictions on access to
audit evidence imposed by group management or laws or regulations. Appendix 1 of this Practice
Note provides an example of a modified opinion due to restriction of access to evidence and an
example report to the legislature.
P9. The significant changes that affect the group engagement team’s ability to obtain sufficient
appropriate audit evidence as mentioned in paragraph A12 of the ISA may in the public sector
be affected by additional changes, such as;
• Changes in laws and regulations affecting the financial management information system and/or
the financial reporting framework; and
• Changes in the nature, sources or amounts of funding, including changes in the structure of
public debt.
P12. When considering paragraph A37 of the ISA public sector auditors may note that in the public
sector, the component auditor may also be subject to the requirements of INTOSAI Code of Eth-
ics4 as adopted by the public sector audit organization.
P13. The second bullet of paragraph A38 of the ISA discusses the group engagement team’s under-
standing of the component auditor’s professional competence and whether the component auditor
possesses the special skills (e.g. industry specific knowledge) necessary to perform the work. In
the context of the public sector environment this would include knowledge of that environment
and applicable laws and regulations relevant to the group audit.
P14. Paragraph A41 of the ISA discusses circumstances where law or regulation prohibits access to
relevant parts of the audit documentation of the component auditor. In such circumstances, the
public sector also may consider whether to communicate the matter to the legislature or other ap-
propriate regulatory bodies.
Materiality
P15. When determining materiality for the group financial statements as required by paragraphs 21
to 23 of the ISA, public sector auditors may use the guidance in ISSAI 13205 paragraphs P8 and
P9, which addresses determining materiality in the public sector. In the context of group finan-
cial statements, materiality for classes of transactions, account balances, disclosures as well as
component materiality may be assessed at a low level in the public sector. This may occur for
a variety of reasons, including the context of the matter, or the nature and characteristics of the
systems and entities involved. In addition, there might be requirements for separate opinions
on components, thus indicating a need for lower materiality for the components. Furthermore,
certain procedures may be required to be performed by audit mandate or legislation, or the public
sector auditors may design audit procedures for transactions that are significant solely because of
their nature.
P16. As required by paragraph 21(d) of the ISA the determination of a threshold, above which mis-
statements cannot be regarded as clearly trivial to the group financial statements, may be influ-
enced by the nature of the subject matter and public sensitivity. Public sector group auditors also
take into account the broader public sector perspective by which they may be required to com-
municate all misstatements, including those that have been corrected by the entity, and all control
deficiencies, and instances of non-compliance with authorities. In such cases no thresholds would
be established.
of material misstatements in a disaster-relief operation will usually be higher than the risk of
material misstatements in a more stable operation such as payment of salaries to schoolteachers.
To assess the risk of material misstatements in group wide operations, the group auditor may cat-
egorize components according to the nature of their operations, assessing risk for each category
separately. Such an exercise may enable the group auditor to determine the nature, timing and
extent of the work to be performed.
Consolidation Process
P18. When considering the guidance in paragraph A56 of the ISA, in the context of the public sector
there may be a variety of transactions recorded only at the group level especially in the consoli-
dated financial statements of the government. Such transactions may include recording of natural
resources or historical treasures. In such cases, group public sector auditors are responsible for
obtaining sufficient appropriate audit evidence for these transactions.
6 ISSAI 1240, ”The Auditor´s Responsibilities Relating to Fraud in an Audit of Financial Statements.”
Appendix 1 of the ISA contains an example of an auditor’s report containing a qualified opinion based
on the group engagement team’s inability to obtain sufficient appropriate audit evidence in relation to
a significant component accounted for by the equity method of accounting, but where, in the group
engagement team’s judgment, the effect is material but not pervasive.
ISSAI 42007 provides examples of opinions on compliance with laws and regulations.
In the public sector a basis for qualified opinion and a report on other legal and regulatory requirements
might appear as follows:
[Appropriate Addressee]
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audit…
…We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our qualified audit opinion.
Qualified Opinion
In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion
paragraph, the consolidated financial statements present fairly, in all material respects……
[Auditor’s signature]
[Auditor’s address]
These are examples of public sector related conditions in addition to the examples included in Appendix
3 of the ISA, which might indicate risks of material misstatements of the group financial statements.
Additional matters that may be relevant in the public sector in addition to requested or suggested matters
in appendix 5 of the ISA may include:
• A list of laws and regulations relevant to the audit of the component audit as well as a list of laws and
regulations relevant to the group audit; or
• A list of additional procedures that the group auditor determines is necessary to be performed by the
component auditor.