CPA Exam — AUDEthics, Professional Responsibilities, and General PrinciplesMedium
An auditor is planning the audit of a large multinational corporation. The corporation has decentralized operations with subsidiaries in several countries, each with its own accounting system. The auditor decides to use a group audit approach. Which of the following is an essential aspect of engagement planning for such a group audit?
- AEstablishing a clear communication strategy with component auditors regarding scope and reporting.
- BDeveloping a detailed plan for each component auditor without direct communication.
- CDelegating all audit procedures for foreign subsidiaries to local component auditors without review.
- DAssuming all component auditors will apply U.S. GAAS uniformly without specific instructions.
Show answer & explanationAnswer & explanation
Correct answer: A. Establishing a clear communication strategy with component auditors regarding scope and reporting.
For a group audit, effective engagement planning includes establishing a clear communication strategy with component auditors. This ensures they understand the scope of their work, reporting requirements, and how their work integrates into the overall group audit, which is crucial for achieving audit objectives.
Why the other options are wrong
- B. Direct communication is vital; a detailed plan without communication can lead to misunderstandings and inefficiencies.
- C. The group engagement team must oversee the work of component auditors, including reviewing their work, to ensure its adequacy for the group audit.
- D. Component auditors may operate under different local standards; the group engagement team must provide specific instructions to ensure their work is suitable for the group audit under the group engagement standards (e.g., GAAS).
Group Audit Planning
Engagement planning for a group audit involves coordinating the audit work across multiple components (subsidiaries, divisions) often performed by different auditors (component auditors).
- Requires clear communication and coordination.
- Group engagement team retains overall responsibility.
- Focuses on identifying significant components and risks.
Memory trick: Plan with PERC: Personnel, Estimates, Risks, Communication.