Group audit issues that arise in Maltese-based group structures : an evaluation

Abstract

This study aimed at exposing the major issues in conducting the audits of group companies, from the perspective of the auditors. The perspective of the group companies' representatives was also sought to investigate how the similar issues encountered by auditors who conduct group audits, are dealt with. This aim was fulfilled through the objectives of distinguishing the extent of involvement of the group auditor in the subsidiary auditor's work; investigating the issue of accessibility of information required by the group auditor; analysing the risks in group auditing and how they are tackled, as well as examining the particular issues relating to foreign based subsidiaries. The expression of the group auditor's opinion on the consolidated financial statements emerged as the major issue in group audits. Consequently, this raises various other issues including the involvement of another auditor not within the same network firm as that of the group auditor, who audits a component within the group. The materiality level of the components also raises implications during group audits, regarding the acceptance of the audit by the group auditor. Communication between the auditors conducting the group audit, whether from the same network firm or otherwise, as well as with the group client, appeared to be another fundamental issue during group audits. This was found to be attributable to the access to information required by the group auditor in expressing the audit opinion. Fraud risk ranked amongst the various risks cited by group auditors, in addition to the other frequently perceived risks including, reliance by the group auditor on the work of other auditors. The identification of such risks was claimed to be made at planning stage, as well as through experience in the case of recurring audits. At the time when this study was carried out, ISA 600 was still in draft format. It was concluded from this study that Maltese auditors who conduct group audits are conversant with the requirements of this ISA. Another conclusion of this study is that despite the issues that auditors have to face during group audits including risks, Maltese group auditors recognise the importance of carrying out an up-to standard group audit, since generally, these auditors have in place procedures that assist them to obtain confirmation on the reliability of the other auditor and his work and to mitigate the risks that arise in group audits.