- 15 Marks
AAA – Nov 2018 – L3 – Q6 – Group Audits
Evaluating the use of component auditors, audit scope, and group audit instructions for a multinational group audit
Question
You are the Group Engagement Partner on the audit of the consolidated financial statements of GoodLife Investment Plc for the year ended 31 December 2017. GoodLife Investment Plc is a group of companies with subsidiaries in various countries across Africa. Based on the relative size of the components in terms of revenue, profit before tax, total assets, total liabilities, and net assets, you have identified some of the subsidiaries as significant components.
Component materiality has been determined as N22 million. In addition, from your preliminary risk assessment, you have identified some components that are likely to contain significant risk of material misstatements in the group financial statements. You plan to request component auditors to perform work on the financial information of the following components as at 31 December 2017.
| Component ID | Component Name | Component Auditor | Country | Classification of Component | Likely Significant Risks of Material Misstatement |
|---|---|---|---|---|---|
| GIP | Goodlife Investment Plc | JPM & Co. (Chartered Accountants) | Nigeria | Significant component | – Fraudulent revenue recognition |
| – Credit risk (allowance for loan impairment and impairment of other financial assets) | |||||
| – Valuation of financial instruments | |||||
| GISAL | Goodlife Investments South Africa Limited | QSS Audit (Chartered Accountants) | South Africa | Significant component | |
| GIL | Goodlife Insurance Limited | JPM & Co. (Chartered Accountants) | Nigeria | Insignificant component | – Valuation of insurance liabilities |
| GPRS | Goodlife Properties & Real Estate Services | Adibe & Co. (Chartered Accountants) | Nigeria | Significant component | |
| GSL | Goodlife Stores Limited | Kwesi & Co. (Chartered Accountants) | Ghana | Insignificant component |
Required:
a. Identify four factors that need to be considered by the group auditor in determining the use of component auditors to work on the financial information of these components. (4 Marks)
b. Discuss three principles to be applied when determining the type of work to be performed on each of the components above. (Link specific consideration to relevant components as shown above). (9 Marks)
c. List four contents of a Group Audit Instruction to a component auditor. (2 Marks)
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