GAQC Web Event. Group Audits: A Look Back One Year Later and Lessons Learned. Group Audits: A Look Back One Year Later and Lessons Learned

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1 Group Audits: A Look Back One Year Later A Web Event Trouble Shooting Troubleshooting Tips No Audio? Ensure that your computer speakers are turned on that the volume is appropriately set Check to ensure that audio streaming is enabled on your computer If the presentation slides stop advancing during the presentation Close out of the presentation and re-launch the webcast If you are still having audio or other technical difficulty Check with your IT personnel at your firm or state audit organization (SAO) to ensure that this event is not being blocked by a firewall Call the AICPA Service Center at Administrative Notes We encourage you to submit your technical questions please limit your questions to the content of today s program You can submit your questions at any time during this Web event by clicking on the Q & A tab on the lower right-hand side of your screen You can also download slides in PDF or PowerPoint by clicking on Handouts tab 3 1

2 Continuing Professional Education There will be random participation pop-up markers during the event To obtain CPE, you must click OK on 75% of the participation pop-up markers If you are not receiving CPE for this event, ignore the pop-up markers 4 Continuing Professional Education At the end of today s presentation we will provide steps for obtaining your CPE certificate Contact the Service Center for help with obtaining CPE at or service@aicpa.org If you are not receiving CPE for this event, ignore the pop-up markers if they appear. 5 Presenters Carla Gogin, CPA Baker Tilly Virchow Krause, LLP & Kevin Smith, CPA Crowe Horwath LLP 6 2

3 Our objectives Understand how Group Audit requirements impact audit policies and procedures Identify practice issues in implementing the Group Audits standard Gain better understanding of requirements through use of specific case studies and exercises Identify ideas and methods to effectively and efficiently implement the standard and address practice issues Answer your questions! 7 Group Audits is about components. 8 Group Audits: An Overview 9 3

4 Major sections of the standard Acceptance and continuance group auditor; identify components; preconditions Understanding group; components; component auditors; make reference? Materiality decisions and responding to risks of material misstatement Other procedures consolidation process; subsequent events; evaluating evidence Communications with component auditors; with group governance and management 10 How is an audit affected by group audits? During a F/S Audit... While you re at it... Understand the Entity Identify components Understand components and consolidation process Decide which components are significant Develop Audit Plan Determine if significant components have component auditors and get an understanding Determine whether to/if you can make reference Determine Materiality Determine component materiality for those components you are not making reference to and take into account components for which you are making reference 11 How is an audit affected by group audits? During a F/S Audit... While you re at it... Perform procedures to respond to RMM Test consolidation processes When making reference, make communications to component auditor(s) Evaluate evidence Review communications and audit reports of component auditors you will be making reference to By-the-way, if you don t make reference Be involved in the component auditor(s) work note: this involves a significant increase in the group auditor s procedures 12 4

5 Key definitions group examples Group All the components whose financial information is included in the group financial statements Group financial statements Financial statements that include the financial information of more than one component Group management Management responsible for the preparation of the group F/S Group-wide controls Controls designed, implemented, and maintained by group management over group financial reporting Group auditor opines on the group financial statements 13 Key definitions component examples Component An entity or business activity for which group or component management prepares financial information that is required by the applicable financial reporting framework to be included in the group financial statements Component management Management responsible for preparing the financial information of a component Component auditor An auditor who performs work on the financial information of a component that will be used as audit evidence for the group audit. A component auditor may be part of the group engagement partner s firm, a network firm, or another firm 14 Key definitions component examples Component materiality Materiality for a component determined by the group engagement team for purposes of the group audit Significant component Identified by the group engagement team i) of individual significance or ii) likely to include significant risks of material misstatement of the group F/S 15 5

6 Key definitions reporting frameworks Applicable financial reporting framework means the framework that applies to the group f/s Consolidation process includes Recognition, measurement, presentation, and disclosure of component financial information in the group f/s by inclusion, consolidation, proportionate consolidation, or the equity/cost methods of accounting The aggregation in combined financial statements of component financial information that are under common control.a12 acknowledges that state and local government f/s include multiple columns 16 Let s get into the details 17 Identifying components.11 Component An entity/activity for which group or component mgt prepares financial information that is required to be included in the group F/S.A1 The structure of a group affects how components are identified: parent/subsidiary, joint ventures, investees, head of office/divisions, function, process, product/service.a2 Investment accounted for under equity method.a3 Various levels of components may exist and aggregating may be appropriate.a4 Components may also be groups.a5 In govts, component may be separate legal entity or may be activity, department, or program 18 6

7 Identifying components practice issues Identifying what a component is Want to be sure that all components are identified so that we are in compliance with the standard Don t want to over identify components to be efficient 19 Identifying components common considerations Factors to Consider Other Indicators - Legal structure - Governance structure - Management structure - How decentralized financial reporting is - Decentralized operations - Control environment - Nature of activity - Uniqueness to entity - Equity method investment - Part of audit by other auditors - Physical location of assets - Financial information prepared by others - Existence of multiple general ledgers or records - Whether information is booked in summary form - If risk assessments vary - Legal or regulatory requirements/oversight 20 Implementation considerations The impact of opinion units Two steps to evaluate 21 7

8 Implementation considerations Most significant factors for governments: Separate governance structure Separate management and accounting (control environment) Part of audit performed by other auditors, other office of the same firm, or other partner of the same firm Separate legal entity Outsourced operations Documentation of factors considered and analysis of potential components is critical Avoid tendency to apply definition of component too literally Professional judgment is required Components will most commonly exist within aggregate remaining fund information and aggregate discretely presented component units opinion units 22 Identifying components Situation #1 A local government is preparing financial statements that needs to include a housing authority s financial information. The housing authority is a separate legal entity that has its own management, processes, financial system, and financial statement preparation. Is the housing authority a component of the local government? 23 Identifying components Situation #1 Yes, the housing authority would likely be a component of the local government because of the way the local government needs to incorporate the housing authority s financial information into its financial statements. 24 8

9 Identifying components Situation #2 A local government is preparing financial statements that needs to include a hospital s financial information. The hospital is a separate line of business of the local government and has its own management, processes, financial system and financial statement preparation. Is the hospital a component of the local government? 25 Identifying components Situation #2 Yes, the hospital would likely be a component of the local government because of the way the local government needs to incorporate the hospital s financial information into its financial statements. An entity does not need to be legally separate to be considered a component. 26 Identifying components Situation #3 A local government is preparing financial statements that needs to include a landfill s financial information. The landfill is a separate line of business of the local government and has its own management, processes, financial system but does not prepare entity financial statements. Is the landfill a component of the local government? 27 9

10 Identifying components Situation #3 Yes, the landfill would likely be a component of the local government because of the way the local government needs to incorporate the landfill s financial information into its financial statements. An entity does not need to have annual financial statements to be considered a component. 28 Identifying components Situation #4 A county health department is reported as a nonmajor fund. It has separate management, an oversight committee of the county board, and a separate billing system that integrates with the county financial system. The auditors are the same as the county auditors. Is the health department a component of the local government? 29 Identifying components Situation #4 Probably not. The separate billing system integrates with the county financial system. Although a separate committee oversees the activities, that committee reports to the county board

11 Identifying components Situation #5 A county health department is reported as a nonmajor fund. It has separate management, an independent board, and a separate accounting system that is used to produce separate financial statements for the fund. The auditors are the same as the county auditors. Is the health department a component of the local government? 31 Identifying components Situation #5 Likely yes. The governance structure, separate systems, and separately prepared financial statements suggest this is a component. 32 Identifying components Situation #6 A county health department is reported as a nonmajor fund. It has separate management and processes, an independent board, and utilizes the county financial system for recording transactions. The auditors are the same as the county auditors. Is the health department a component of the local government? 33 11

12 Identifying components Situation #6 Likely no. The separate management, governance, and decentralized operations are relevant factors suggesting it could be a component; however, if the only financial information is produced in the county system, likely it is not. 34 Identifying components Situation #7 A state is preparing financial statements that needs to include a department s financial information. The department is a separate line of business of the state but has its own management and processes. It does use the state s financial system to prepare department-level financial statements that are audited by an audit firm different from the state s auditor. Is the department a component of the state? 35 Identifying components Situation #7 Yes, if the state s auditors intend to make reference to the other auditor s reports. That answer may likely change if the state does not use the department-level financial statements to prepare the state s financial statements and the state s auditors intends to audit the department itself

13 Other considerations for governments Existence of components evaluated within individual opinion units Each opinion unit usually its own (potential) group Exception for other auditors of an opinion unit (a component) Departments within a major fund that are separately managed may also be components Beware of changes in major fund determination 37 Other considerations for governments For opinion units with multiple reporting units, components will commonly exist within: Aggregate discretely presented component units o Individual component units whether audited by same audit firm or other auditors Aggregate remaining fund information: o Pension or OPEB trust funds o Investment trust funds 38 Identifying components Some sure things Need to make reference to the work of other auditors Investment accounted for under the equity method Key question to ask How does management prepare its financial statements; specifically, when do they have to incorporate financial information differently than from its own financial information system(s)? 39 13

14 Identifying components practice issues Documentation issues Standard only requires (related to identifying components)... o Analysis of components indicating those that are significant and the type of work performed on component financial information o Those components for which reference is made Additional documentation policies? Spread across multiple areas or in one summary? 40 Let s reset for a moment... During a F/S Audit... While you re at it... Understand the Entity Identify components Understand components and consolidation process Decide which components are significant Develop Audit Plan Determine if significant components have component auditors and get an understanding Determine whether to/if you can make reference Determine Materiality Determine component materiality for those components you are not making reference to and take into account components for which you are making reference 41 Acceptance and continuance.14 Group engagement partner (Partner) should determine whether sufficient appropriate evidence can be obtained. So, the group engagement team (Team) should obtain an understanding of the group, components, and environment sufficient to identify components that are likely significant.15 Partner should evaluate whether the Team will get sufficient evidence from work of component auditors (assuming responsibility or making reference) to act as group auditor 42 14

15 Acting as group auditor The following are factors in determining whether to act as group auditor How large the components that the group auditor will be assuming responsibility for are The risks of material misstatement in components that the group auditor will be assuming responsibility for The extent of group auditor knowledge of overall financial statements How much involvement the group auditor will have in work of component auditor that group auditor will be assuming responsibility for Who was engaged to audit the primary government Who is responsible for auditing the primary government s general fund 43 Acceptance and continuance.16 When group engagement partner determines that sufficient appropriate evidence cannot be obtained because of restrictions imposed by group management, of sufficient effect to require a disclaimer, Do not accept the new engagement, Withdraw from the continuing engagement, or Disclaim on opinion when the entity is required by law or regulation to have an audit. 44 Understanding the group, its components, and their environments.20 Includes obtaining an understanding of the group, its components, including Group-wide controls The consolidation process.21 Understanding should be sufficient to Confirm or revise initial identification of components likely to be significant Assess risk of material misstatement of group financial statements 45 15

16 Determining significance of components requirements AU-C Significant component a component identified by the group engagement team (i) that is of individual financial significance to the group, or (ii) that, due to its specific nature or circumstances, is likely to include significant risks of material misstatement of the group financial statements AU-C 600.A6-.A8 provide guidance about identifying benchmarks and applying a percentage, including in audits of governments 46 Determining significance of components requirements a visual representation It s Big Group Components A B C It has significant RMM 47 Why do we care if components are significant? Financially Significant Component Audit of financial information (adapted as necessary) using component materiality Risk based Significant Component Audit financial information (adapted as necessary) using component materiality Audit (adapted as necessary) of one or more class of transactions related to the risk Specific audit procedures designed to address the risk Non significant Components Analytical procedures to determine if significant risks of material misstatements If additional significant risks of material misstatements are identified, using auditor judgment, apply requirements of riskbased significant components 48 16

17 Determining significance of components practice issues Determining what a significant component is is Determining the percentage to apply to the benchmark otoo low means we audit too many (efficiency issue) otoo high means we have a coverage issue and have to add more components to test 49 Determining Significance: 3 Situations Component C Component B Component A 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Situation 1 Situation 2 Situation 3 50 Implementation considerations Generally use multiple benchmarks for determining financially significant components When establishing % for financially significant components, look at coverage Percentage for financially significant often ranges between 20 and 35% Usually want to achieve coverage of above 90% for all accounts tested in audit, depending upon identified risks Consider aggregating non-significant components together for testwork 51 17

18 Determining significance Situation #1 A government s group financial statements have a column for the combined financial statements of its Discretely Presented Component Units. All 3 entities reported within that column are identified as components. Component A is 80%, Component B is 15%, and Component C is 5% of the column. Which component(s) are significant? 52 Determining significance Situation #1 So what do you think?? 1. Is Component A (80%) significant? 2. Is Component B (15%) significant? 3. Is Component C (5%) significant? 53 Determining significance Situation #1 So what do you think?? 1. Is Component A (80%) significant? 2. Is Component B (15%) significant? 3. Is Component C (5%) significant? What more would you want to know about Component B? Does it have financial statement line items that are significant risks of material misstatement? Does it already have audited financial statements? If yes, by whom? Yes Maybe What are your options for Component B? Call it significant and have full financial statement audit/make reference (coverage issue) Identify one or more significant risks of material misstatement and audit those risks (coverage issue) No 54 18

19 Determining significance Situation #2 A government s group financial statements have a column for the combined financial statements of its Discretely Presented Component Units. All 3 entities reported within that column are identified as components. Component A is 60%, Component B is 20%, and Component C is 20% of the column. Which component(s) are significant? 55 Determining significance Situation #2 So what do you think?? 1. Is Component A (60%) significant? 2. Is Component B (20%) significant? 3. Is Component C (20%) significant? 56 Determining significance Situation #2 So what do you think?? 1. Is Component A (60%) significant? 2. Is Component B (20%) significant? 3. Is Component C (20%) significant? Yes Likely Likely What more would you want to know about Components B and C? Do either have financial statement line items that are significant risks of material misstatement? Do either already have audited financial statements? If yes, by whom? What are your options for Components B and C? Call B AND C significant and have full financial statement audits/make reference Call B significant (full audit) and audit one or more significant risks of material misstatement at C (or vice versa) Audit one or more significant risks of material misstatement at both B AND C (coverage issue) 57 19

20 Determining significance Situation #3 A government s group financial statements have a column for the combined financial statements of its Discretely Presented Component Units. All 3 entities reported within that column are identified as components. Components A, B, and C are each 33⅓% of the column. Which component(s) are significant? 58 Determining significance Situation #3 So what do you think?? 1. Is Component A (33⅓%) significant? 2. Is Component B (33⅓%) significant? 3. Is Component C (33⅓%) significant? 59 Determining significance Situation #3 So what do you think?? 1. Is Component A (33⅓%) significant? 2. Is Component B (33⅓%) significant? 3. Is Component C (33⅓%) significant? Likely Likely Likely What more would you want to know about Components A, B and C? Do any have financial statement line items that are significant risks of material misstatement? Do any already have audited financial statements? If yes, by whom? What are your options for Components A, B and C? Call all of them significant and have full financial statement audits/make reference Call two of them significant (full audits) and audit one for its significant risks of material misstatement (coverage issue) Call one of them significant (full audits) and audit two for their significant risks of material misstatement (coverage issue) 60 20

21 Determining significance practice issues Performance issues Setting the bar for significance Specific policies for coverage? Additional specific procedures for applying judgment and making determinations? Documentation issues Standard only requires... o Analysis of components indicating those that are significant and the type of work performed on component financial information Additional documentation policies? 61 Understanding a component auditor.22 Regardless of whether reference will be made to the component auditor, the group engagement team (Team) should obtain an understanding of a. Whether a component auditor understands/will comply with ethical requirements, including independence b. A component auditor s professional competence c. The extent to which the Team will be able to be involved in the work of the component auditor d. Whether the Team will be able to obtain information affecting the consolidation process from component auditor e. Whether a component auditor operates in a regulatory environment that actively oversees auditors 62 Understanding a component auditor.23 When a component auditor does not meet the independence requirements relevant to the group audit or the group engagement team has serious concerns about the matters in.22a-b, group engagement partner is not permitted to make reference to that component auditor or otherwise use the work of that component auditor 63 21

22 Determining whether to make reference to component auditors.25 Reference to the audit of a component auditor should not be made unless a. Component auditor followed the relevant requirements of GAAS*) b. Component auditor report is not restricted as to use** *.A53 explains that relevant requirements are those related to planning and performance ** Remember the GAGAS exception in AU-C Determining whether to make reference to component auditors.26 If the component s f/s are prepared using a financial reporting framework different than the group s f/s, reference to the audit of a component auditor should not be made unless a. The measurement, recognition, presentation, and disclosure criteria used for material items in the component s f/s are similar to criteria used for material items in group f/s, and b. The group engagement team obtains sufficient appropriate evidence for adjustments used to convert component information to group s reporting framework, without being involved in the work of the component auditor 65 Determining similarity of frameworks a quick quiz Which situations are examples of frameworks that are similar enough that.26 applies: Similar enough? 1. A company s f/s (the group) follows FASB and its subsidiary s f/s (a component) follows IFRS. 2. A company s f/s (the group) follows FASB and its subsidiary s f/s (a component) follows a modified cash special purpose framework. 3. A university s f/s (the group) follows GASB and its foundations f/s (components) follow FASB. 4. A county s f/s (the group) follows GASB and its school districts f/s (components) follow a regulatory based special purpose framework (fund f/s only on modified accrual basis). 5. A city s f/s (the group) follow cash basis special purpose framework and its hospital s f/s (a component) follows full accrual. Y/N 66 22

23 Determining similarity of frameworks a quick quiz Which situations are examples of frameworks that are similar enough that.26 applies: Similar enough? 1. A company s f/s (the group) follows FASB and its subsidiary s f/s (a component) follows IFRS. 2. A company s f/s (the group) follows FASB and its subsidiary s f/s (a component) follows a modified cash special purpose framework. 3. A university s f/s (the group) follows GASB and its foundations f/s (components) follow FASB. 4. A county s f/s (the group) follows GASB and its school districts f/s (components) follow a regulatory based special purpose framework (fund f/s only on modified accrual basis). 5. A city s f/s (the group) follow cash basis special purpose framework and its hospital s f/s (a component) follows full accrual. Y/N Yes No Yes No No 67 Determining whether to make reference to component auditors.a57 Guidance for governmental entities When the financial reporting framework used by the group provides for including component f/s prepared with a different financial reporting framework, the component f/s are deemed to be in accordance with the group s financial reporting framework. Acknowledges GASB and FASAB 68 Time to reset where we are again... During a F/S Audit... While you re at it... Understand the Entity Identify components Understand components and consolidation process Decide which components are significant Develop Audit Plan Determine if significant components have component auditors and get an understanding Determine whether to/if you can make reference Determine Materiality Determine component materiality for those components you are not making reference to and take into account components for which you are making reference 69 23

24 Determining materiality.32 Materiality the group engagement team should determine: a. Materiality, including performance materiality, for group financial statements b. Whether specific circumstances exist for which something less than materiality would influence users; if so, apply a different materiality to those transactions, balances, or disclosures 70 Determining materiality.32 Materiality the group engagement team should determine: c. Component materiality for components that group auditor will audit or assume responsibility for audit / review. Component materiality s/b lower than group materiality and component performance materiality s/b lower than group performance materiality d. Threshold below which misstatements are trivial 71 Materiality in Planning and Performing an Audit (AU-C 320 and AU-C 600) $ or % Planning and evaluation Assessing the RMM and performing audit procedures Materiality Performance materiality Component materiality Component performance materiality 72 24

25 Determining materiality guidance.a64 Different materiality can be established for different components.a65 Explains why we need to consider all components, including those we make reference to, and why we determine materiality for components we are not making reference to.a66 Explains that materiality used by a component auditor in a stand-alone component f/s audit ordinarily can be expected to be less than group materiality and comments on when it doesn t.a67 Explains that the floor threshold provides a measure for which misstatements are communicated to group engagement team 73 Implementation considerations Need to document factors considered in establishing component materiality Number of Components Nature and extent of misstatements expected in the current period Nature and extent of accounting judgments made at the components Proportion of the group not subject to audit, a review or specified audit procedures Proportion of the group not subject to statutory audits Determination of materiality should be based on consideration off all factors, not just one Component performance materiality often ranges between 50 to 95% of group performance materiality Level of involvement (control) in component audit influences percentage 74 Applying f/s materiality (in thousands) Set materiality Set performance materiality Design audit procedures Evaluate misstatements Materiality = 1% of expenses Performance materiality = 90% of materiality Evaluate whether misstatements exceed $90K Design audit procedures to detect errors greater than $80K 75 25

26 Applying component materiality (in thousands) Component Group Keep group materiality Set component materiality and component performance materiality Design audit procedures of group and component Evaluate misstatements 76 Applying component materiality (in thousands) Component Group Keep group materiality Set component materiality and component performance materiality Design audit procedures of group and component Evaluate misstatements Group materiality (GM) = $90K and group performance materiality (GPM) = $80K Component materiality (CM) = 90% of GM and component performance materiality = 90% of CM Evaluate whether group misstatements exceed $90K and component errors exceed $80K Design audit procedures to detect group errors > $80K and component errors > $70K 77 Applying component materiality (in thousands) Component Component Group Keep group materiality Set component materiality and component performance materiality Design audit procedures of group and component Evaluate misstatements 78 26

27 Applying component materiality (in thousands) Component Component Group Keep group materiality Set component materiality and component performance materiality Design audit procedures of group and component Evaluate misstatements Apply component materiality and component performance materiality to those you assume responsibility for Consider all components, even those you make reference to, when determining materiality for those you assume responsibility for 79 Let s reset again... During a F/S Audit... While you re at it... Perform procedures to respond to RMM Test consolidation processes When making reference, make communications to component auditor(s) Evaluate evidence Review communications and audit reports of component auditors you will be making reference to By-the-way, if you don t make reference Be involved in the component auditor(s) work note: this involves a significant increase in the group auditor s procedures 80 Responding to assessed risks.33 If consolidation or component audit procedures are based on reliance on expectation of group-wide controls, group-wide controls should be tested by group engagement team (Team) or component auditor for the Team.35 The Team should perform procedures on consolidation process that respond to related assessed risks 81 27

28 Responding to assessed risks Address the Team s required procedures for consolidation adjustments and reclassifications; adjustments for different accounting policies; conformity between component auditor s information and what was incorporated; adjustments for different component year-ends.40 The Team or component auditors should perform procedures to identify subsequent events at components that would affect group f/s or disclosures 82 Responding to assessed risks practice issues Group-wide controls & Consolidation Process Test group-wide controls but who GA or CA? Test consolidation process but who GA or CA? Subsequent events (SE) issues: How often does component audit work finish before group audit team is done? Who is responsible for SE work GA or CA? 83 Subsequent Events The following are procedures that can be utilized for identification of component subsequent events Obtain understanding of group management s procedures to identify component subsequent events Request component auditor to perform update Request written representation from component management Read interim financial information of component Review minutes of component board/committee Inquire of group management, component management 84 28

29 Implementation considerations subsequent events Appears to be practice issue that subsequent events for components are not adequately addressed between date of component and group auditor reports Group management is responsible for subsequent events of group, including components Group management should establish process to perform subsequent event procedures for components Group auditor can test procedures performed by group management or request component auditors to perform subsequent events procedures over applicable components 85 Involving group management practice issues Need group management to serve as the communication hub between group auditors and component auditors To assist in group auditor efforts to test group-wide controls and the consolidation process, or use component auditors to do so, when component management has responsibilities in these areas To assist in group auditor efforts to perform subsequent events procedures ouse component auditors, or ohave group management take necessary steps 86 Communicating with component auditors.41 applies when making reference or assuming responsibility Group engagement team should communicate to component auditor: o An understanding of how component work will be utilized and confirming cooperation o Relevant ethical and independence requirements o Related parties o Identified significant risks of material misstatements to group financial statements that are relevant to component auditor 87 29

30 Communicating with component auditors.42 applies when making reference or assuming responsibility Group engagement team should request component auditor communicate: o Compliance with ethical requirements, including independence and professional competence o Identification of the financial information on which the component auditor is reporting o Component auditors findings, conclusions, or opinion 88 Communicating with component auditors (cont.).60 and.61 apply additionally when assuming responsibility Communication of component materiality, performance materiality, and threshold for trivial. Various additional items requested from component auditor: o Compliance with group engagement teams requirements o Instances of noncompliance with laws and regulations o Significant risks and component auditors response o Corrected and uncorrected misstatements o Indicators of possible management bias in estimates or accounting principles o Identified material weaknesses and significant deficiencies o Other significant findings, issues, or relevant matters 89 When component auditors are from the same firm.11 Component auditor An auditor who performs work on the financial information of a component that will be used as audit evidence for the group audit. A component auditor may be part of the group engagement partner s firm, a network firm of the group engagement partner s firm, or another firm..a11 A member of the group engagement team may perform work on the financial information of a component for the group audit at the request of the group engagement team. When this is the case, such a member of the group engagement team also is a component auditor. Strategies for streamlining the requirements

31 Additional requirements when assuming responsibility The requirements for a group auditor who does not make reference to a component auditor s report, and decides instead to take responsibility for the work of a component auditor has a SIGNIFICANT increase in requirements compared to: Current guidance on the matter When making reference under this new AU section contains requirements 91 Assuming responsibility situations In government audits, assuming responsibility may be necessary if: Contractual relationships require (for example, minority firm participation or multifirm consortiums) Doubts about the professional competence of component auditors exist Other? 92 Questions????? 93 31

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