Acca aaa s21 Notes

component materiality
.
September 2021 to June 2022 exams
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For (ii), the group auditor (or a component auditor) must do one of the following:
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An audit of the audit of the component using component materiality.
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An audit of classes of transactions, balances and disclosures relevant to the identified specific 
risks.
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Specified audit procedures relating to the identified specific risks.
ISA 600 mentions, as an example only, that a component exceeding 
15%
of the chosen benchmark 
may be considered significant.
If a component is not significant, analytical procedures at group level may be sufficient. If not 
sufficient, further work may be required on selected components.
To assess the work performed by component auditors the group auditor could issue a questionnaire, 
or have a meeting with component auditor(s) asking about:
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compliance with group audit requirements
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instances of NOCLAR relevant to the group financial statements
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uncorrected misstatements (other than those that are clearly trivial)
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indicators of possible management bias
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significant deficiencies in internal control
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any matters communicated to those charged with governance of the component
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the component auditor's overall findings, conclusions and opinion.
9. The consolidation process
Nowadays, much of this will involve transcribing component financial statements onto a spreadsheet 
then adding like balances to like balances throughout the group. Of course, some groups will have a 
financial accounting package which will automatically perform most of the consolidation process. 
However, you will understand that simply the amount of data that has to be dealt with correctly on a 
consolidation will introduce a high risk that errors are made: transcribing a figure incorrectly or onto 
the wrong row or having an error within the spreadsheet formulae.
Therefore, an important part of the group auditor’s work is to check that the correct amounts from 
each component company have been identified and included in the consolidation schedules and that 
these are arithmetically accurate. 
The group auditor then has to check that the appropriate consolidation adjustments have been 
made. The principal adjustments are:
๏
Goodwill and pre-acquisition reserves.
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Eliminate unrealised intra-group profits.
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Reconcile intra-group balances.
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Adjustments to align the components' financial statements for the purposes of consolidation.
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Fair values to be used where appropriate.
For any acquisition that happened in the year, any goodwill arising will have to be audited.