Acca aaa s21 Notes

September 2021 to June 2022 exams
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11. Letter of support (‘comfort letters’)
If a subsidiary has a going concern issue and is not confident of support from outside lenders, then its 
parent might offer support (ie make a loan to the subsidiary) to enable it to continue trading for the 
foreseeable future. This would mitigate the subsidiary's going concern problem.
In these circumstances, the group board must provide the group auditor with a ‘letter of comfort’ or 
‘support letter’ in which they set out their intentions. But, of course, this letter is a relatively weak form 
of evidence and the group auditor should look for other evidence that the support for the subsidiary 
is real. For example:
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Ensure that the group has the cash resources available to support to subsidiary.
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Inspect board minutes for evidence that support has been agreed.
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Inspect correspondence between the parent and the subsidiary or the parent and the relevant 
bankers.
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Inspect cash flow budgets to see if the transfer of funds has been incorporated.
12. Joint audits and transnational audits
12.1. Joint audits
A joint audit is when two firms of auditors are both appointed and are both responsible for the audit 
opinion. It is a relatively unusual arrangement and has probably come about through the merger of 
two companies with different auditors as there can then be benefits in the joint approach:
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Auditor knowledge about each part of the group is retained
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A larger pool of resources available to carry out the audit. This might allow the audit to be 
carried out more quickly.
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Geographical considerations might make a joint audit more efficient (eg to benefit from the 
insights of a local auditor).
However, there are certain disadvantages:
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Both firms of auditors will require a fee and these will probably total to more than the fee of only 
one firm doing the whole audit.
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Different approaches, methods and documentation can cause difficulties.
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They might clash over the audit opinion.
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Coordination over the parts of the audit that each carries out might be poor eg there could be a 
gap in coverage.
Obviously, before agreeing to be a member of a joint audit arrangement, any auditor should be happy 
about their fellow-auditor: competence, ethics, experience, reputation.
Almost certainly, each one of the joint auditors will hope to oust the other auditors and end up as the 
sole auditor. Auditing firms should beware of ethical risks to their objectivity and integrity arising from 
their attempts to be the client’s favourite auditor.
Note that in some countries, joint audits may be a legal requirement (eg in France). Also, joint audits 
help facilitate the transition from one audit firm to another where mandatory rotation is required.