Scope and objectives
Joint audits involve the appointment of two or more auditors who work together to issue an audit report on the financial statements of an entity.
The SA 299 lays down broad principles and a uniform approach to the process of joint audits. This means that the auditors should follow a consistent approach to conducting the audit to ensure that they meet the overall objectives of the auditor as laid down in SA 200 “Overall Objectives of the Independent Auditor and the conduct of an audit in accordance with Standards on Auditing”.
In addition to providing guidance on the general principles of conducting a joint audit, the SA 299 also identifies the areas of work and coverage that should be assigned to each joint auditor. This helps to ensure that the work is divided in a way that allows each auditor to effectively perform their respective duties.
The SA 299 also outlines the individual and joint responsibilities of the auditors in relation to the audit. This means that each auditor has their own specific responsibilities, but they also have a shared responsibility to ensure that the audit is conducted in accordance with professional standards and that the audit report issued is appropriate.
It is important to note that the SA does not address the relationship between a principal auditor and another auditor who is appointed to report on the financial statements of a component included in the financial statements of the entity.
Finally, it is worth noting that the SA 299 is effective for audits of financial statements for periods beginning on or after April 1, 2018. This means that auditors are expected to comply with the SA 299 when conducting joint audits of financial statements for entities for those periods.
Audit Planning, Risk Assessment and Allocation of Work
The engagement partner and key members of the engagement team from each of the joint auditors must be involved in planning the audit, and the joint auditors must jointly establish an overall audit strategy that sets the scope, timing, and direction of the audit.
Before the audit begins, the joint auditors must discuss and develop a joint audit plan, which involves identifying the division of audit areas and common audit areas amongst the joint auditors, as well as ascertaining the reporting objectives of the engagement, considering significant factors, and determining the resources necessary to perform the engagement.
Risk of material misstatement must be considered and assessed by each of the joint auditors, and these risks must be communicated to the other joint auditors and documented. The joint auditors must also document the nature, timing, and extent of the audit procedures for common and specific allotted areas of the audit to be performed by each of the joint auditors and communicate this to those charged with governance.
The joint auditors must obtain a common engagement letter and a common management representation letter. Finally, after the identification and allocation of work among the joint auditors, the work allocation document must be signed by all the joint auditors and communicated to those charged with governance of the entity.
These requirements help ensure that the joint audit is conducted effectively, with clear and agreed-upon responsibilities for each auditor, and that the work is well-coordinated and consistent across all joint auditors.
Responsibility and Co-ordination among Joint Auditors
It states that each joint auditor is responsible for the work allocated to them and for properly executing the audit procedures. In cases where specific divisions or units are assigned to different joint auditors, each auditor is responsible for obtaining information and explanations from the management in respect of their assigned areas and evaluating them.
All joint auditors are jointly and severally responsible for certain aspects of the audit, including audit work that is not divided among them, decisions taken in audit planning regarding common audit areas, and examining that the financial statements comply with relevant statutes and reporting frameworks. The joint auditors must coordinate and communicate effectively throughout the audit process.
If a joint auditor comes across any relevant matter that is the responsibility of other joint auditors, they must communicate it in writing to all other joint auditors prior to completing the audit. It is the responsibility of each joint auditor to determine the nature, timing, and extent of the audit procedures to be applied in relation to the areas of work allocated to them, and to evaluate the system of internal control and assessment of risk relating to their assigned areas.
Audit Conclusion and Reporting
The requirements and guidelines for joint auditors in issuing an audit report. When joint auditors have differing opinions on the opinion or matters to be covered in the audit report, they must express their opinion in a separate audit report. The joint auditors must also reference the separate audit reports issued by the other joint auditors in the audit report(s) they issue. Each joint auditor is entitled to assume that the other joint auditors have carried out their part of the audit work in accordance with auditing standards, and that any departures from financial reporting framework or significant observations have been brought to their attention. In the case of a large entity with multiple branches, each joint auditor is responsible for reviewing the audit reports/returns of the divisions/branches allocated to them and ensuring they are properly incorporated into the accounts of the entity. Finally, joint auditors must discuss and communicate with each other to ensure their respective conclusions are consistent and form the content of the audit report.
Communication with Those Charged with Governance
The communication that joint auditors must have with those charged with governance (such as directors or trustees) in specific situations.
When the joint auditors expect to modify the opinion in the auditor’s report, they must inform those charged with governance of the circumstances that led to the expected modification and the proposed wording of the modification. This is required to ensure compliance with the Standard on Auditing (SA) 705(Revised) which deals with “Modifications to the Opinion in the Independent Auditor’s Report”.
Similarly, if the joint auditors expect to include an Emphasis of Matter or an Other Matter paragraph in the auditor’s report, they must also communicate with those charged with governance about this expectation and the proposed wording of this paragraph to ensure compliance with SA 706(Revised), which deals with “Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report”.
In joint auditors must communicate with those charged with governance in certain situations to ensure that the content of the auditor’s report complies with relevant auditing standards
Quiz: Joint Audit of Financial Statements
1. What is the main objective of a joint audit?
a) To reduce the workload for individual auditors.
b) To issue multiple audit reports for the same entity.
c) To enhance the quality and credibility of the audit process and financial statements.
d) To minimize the need for communication between auditors.
Answer: c)
2. Which auditing standard provides guidance on the principles and approach to joint audits?
a) SA 200 “Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Standards on Auditing.”
b) SA 299 “Joint Audit of Financial Statements.”
c) SA 705 “Modifications to the Opinion in the Independent Auditor’s Report.”
d) SA 706 “Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report.”
Answer: b)
3. What does SA 299 define regarding the work allocation in joint audits?
a) It provides guidelines for selecting auditors for joint audits.
b) It specifies the financial statements that are subject to joint audits.
c) It outlines the areas of work and coverage assigned to each joint auditor.
d) It determines the fees payable to each joint auditor.
Answer: c)
4. In a joint audit, what is the responsibility of each individual auditor?
a) They are responsible for their assigned areas and executing audit procedures.
b) They are responsible for coordinating communication with those charged with governance.
c) They are responsible for finalizing the audit report.
d) They are responsible for conducting risk assessments.
Answer: a)
5. Does SA 299 address the relationship between a principal auditor and another auditor reporting on a component included in the financial statements?
a) Yes, it provides specific guidelines for the relationship between the principal auditor and the component auditor.
b) No, it does not address the relationship between the principal auditor and the component auditor.
c) SA 299 does not apply to audits involving components included in the financial statements.
d) SA 299 recommends a separate set of standards for the relationship between the principal auditor and the component auditor.
Answer: b)
6. When should auditors comply with SA 299 for joint audits?
a) For audits of financial statements beginning on or after April 1, 2018.
b) For audits of financial statements beginning on or after January 1, 2022.
c) For audits of financial statements beginning on or after April 1, 2021.
d) For audits of financial statements beginning on or after the publication date of SA 299.
Answer: a)
7. What are the key activities involved in audit planning for joint audits?
a) Identifying the division of audit areas and common audit areas, assessing risk, and allocating work.
b) Developing the engagement letter and management representation letter.
c) Conducting a review of the system of internal control.
d) Collecting and analysing audit evidence.
Answer: a)
8. How should the risk of material misstatement be considered and communicated among joint auditors?
a) Each joint auditor should independently assess the risk without any communication with others.
b) Joint auditors should collectively determine the risk of material misstatement.
c) The risk assessment is not necessary in joint audits.
d) Each joint auditor should assess the risk and communicate it to others.
Answer: d)
9. Which documents must be obtained and communicated among joint auditors during the joint audit process?
a) Engagement letter, management representation letter, and work allocation document.
b) Audit program, financial statements, and trial balance.
c) Board minutes, meeting agenda, and financial policies.
d) Bank statements, invoices, and purchase orders.
Answer: a)
10. What should joint auditors do when they have differing opinions on the opinion or matters to be covered in the audit report?
a) They should issue separate audit reports without referencing each other.
b) They should communicate their differing opinions to those charged with governance.
c) They should disregard the differing opinions and reach a consensus.
d) They should consult with another independent auditor to resolve the differences.
Answer: b)
Additional question:
11.What is the purpose of joint auditors jointly establishing an overall audit strategy?
a) To delegate responsibilities among the auditors.
b) To ensure consistency in audit procedures.
c) To reduce the scope of the audit.
d) To minimize communication with those charged with governance.
Answer: b)
12. How should joint auditors address the risk of material misstatement in a joint audit?
a) Each joint auditor should independently assess the risk without communication.
b) Joint auditors should collectively determine the risk and document it.
c) The risk assessment is not required in joint audits.
d) Joint auditors should solely rely on the assessment of the engagement partner.
Answer: b)
13. What is the purpose of obtaining a common engagement letter in a joint audit?
a) To assign specific responsibilities to each joint auditor.
b) To provide a summary of the audit findings.
c) To communicate the audit plan to those charged with governance.
d) To demonstrate the independence of each joint auditor.
Answer: a)
14. What is the responsibility of each joint auditor in evaluating the system of internal control?
a) To evaluate the control systems of the other joint auditors.
b) To assess the control systems related to their assigned areas.
c) To coordinate with management to improve the internal control.
d) To delegate the evaluation of internal control to the engagement partner.
Answer: b)
15. How should joint auditors address differing opinions on significant matters in the audit report?
a) They should each issue separate audit reports without reference to each other.
b) They should discuss and reconcile their differing opinions to reach a consensus.
c) They should follow the opinion of the engagement partner.
d) They should refer the matter to an external arbiter for resolution.
Answer: b)
16. What is the purpose of joint auditors communicating with those charged with governance?
a) To obtain authorization for audit procedures.
b) To seek approval for changes in the audit plan.
c) To ensure compliance with auditing standards in the audit report.
d) To discuss and resolve conflicts among joint auditors.
Answer: c)
17. When should joint auditors inform those charged with governance about expected modifications to the opinion in the audit report?
a) Only if the modifications are material.
b) Only if the modifications are significant.
c) If the modifications are expected to be made.
d) If the modifications affect the financial statements’ compliance with relevant statutes.
Answer: c)
18. How do joint auditors ensure the consistency of their conclusions in the audit report?
a) They should rely on the opinion of the engagement partner.
b) They should include a disclaimer about the possibility of differing conclusions.
c) They should discuss and communicate with each other throughout the audit process.
d) They should assign a separate auditor to review and validate the conclusions.
Answer: c)
19. What is the responsibility of joint auditors regarding the audit reports of divisions/branches in a large entity?
a) Joint auditors are responsible for preparing separate audit reports for each division/branch.
b) Joint auditors should review the audit reports/returns and ensure their proper incorporation into the entity’s accounts.
c) Joint auditors should disregard the audit reports/returns of divisions/branches.
d) Joint auditors should delegate the responsibility to the engagement partner.
Answer: b)
20. What is the purpose of issuing a separate audit report when joint auditors have differing opinions?
a) To express individual auditors’ disagreement with the engagement partner’s opinion.
b) To provide additional information to those charged with governance.
c) To divide the responsibility for the audit work among joint auditors.
d) To demonstrate the independence of each joint auditor.
Answer: b)
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