Scope and objectives
The purpose and scope of the Auditing standards related to the use of the work of other auditors by the principal auditor in auditing the financial information of an entity. The principal auditor is responsible for forming and expressing their opinion on the financial information, even when work is delegated to assistants or performed by other auditors or experts. However, they are entitled to rely on the work performed by others, as long as they exercise adequate skill and care and have no reason to believe otherwise. This Standard establishes standards for situations where the principal auditor uses the work of another auditor with respect to the financial information of one or more components included in the financial information of the entity.
The Standard defines terms such as “principal auditor,” “other auditor,” and “component” and outlines the principal auditor’s responsibility when using the work of the other auditor. The procedures outlined in the Standard do not apply when the financial information of a component is immaterial. The principal auditor should determine how the work of the other auditor will affect the audit and should state in the auditor’s report the fact of such reliance in the case of any independent statutory appointment to perform the work. The Standard does not deal with the relationship between two or more auditors appointed as joint auditors or the auditor’s relationship with a predecessor auditor.
Acceptance as Principal Auditor
The considerations that the principal auditor should take into account when accepting the appointment as the principal auditor. The principal auditor should evaluate the materiality of the portion of financial information that they will audit, their degree of knowledge regarding the business of the components, and the risk of material misstatements in the financial information of the components audited by the other auditor. Additionally, the principal auditor should perform additional procedures as set out in the standard to ensure they have significant participation in the audit of the components audited by the other auditor. These considerations will help the principal auditor determine whether their own participation is sufficient to act as the principal auditor.
Acceptance as Principal Auditor
The acceptance of the auditor as the principal auditor when using the work of another auditor. According to SA 600, the auditor should consider whether their own participation is sufficient to act as the principal auditor. To make this determination, the auditor should consider the materiality of the portion of the financial information that they will audit, their degree of knowledge regarding the business of the components, and the risk of material misstatements in the financial information of the components audited by the other auditor. Additionally, the auditor should perform additional procedures set out in this SA 600 regarding the components audited by the other auditor, resulting in the principal auditor having significant participation in such audit. In summary, the auditor should ensure that they have the necessary knowledge and experience to take responsibility for the overall audit opinion.
Co-ordination Between Auditors
The Auditing standards SA (600) discusses the responsibilities of the principal auditor in relation to using the work of another auditor (the other auditor). This section specifically addresses the importance of coordination between the principal auditor and the other auditor, as effective communication is essential for ensuring that the audit is conducted in a proper and efficient manner.
According to the standard, there should be sufficient liaison between the principal auditor and the other auditor, and the principal auditor may need to issue written communications to the other auditor to ensure coordination. The other auditor, in turn, should coordinate with the principal auditor by bringing any significant findings to the principal auditor’s attention, adhering to the audit timeline, and ensuring compliance with relevant statutory requirements.
In certain cases, the principal auditor may require the other auditor to answer a detailed questionnaire regarding matters on which the principal auditor requires information for discharging his duties. It is the responsibility of the other auditor to respond to such a questionnaire in a timely manner to ensure the audit can be conducted efficiently.
Reporting Considerations
In terms of reporting considerations, the standard specifies that if the principal auditor concludes that they cannot use the work of the other auditor, and they have not been able to perform sufficient additional procedures regarding the financial information of the component audited by the other auditor, the principal auditor should express a qualified opinion or disclaimer of opinion because there is a limitation on the scope of audit.
Furthermore, if the other auditor issues, or intends to issue, a modified auditor’s report, the principal auditor should consider whether the subject of the modification is significant enough in relation to the financial information of the entity on which the principal auditor is reporting to require a modification of the principal auditor’s report. This means that the principal auditor needs to consider whether the matter that led to the modification of the other auditor’s report has an impact on the financial information of the entity as a whole and whether it needs to be reflected in their own report.
Division of Responsibility
The principal auditor is not responsible for the work performed by the other auditors, except in cases where the principal auditor should have been suspicious about the reliability of the work performed by the other auditors. This means that the principal auditor cannot be held responsible for the actions of the other auditors in the group audit.
Secondly, SA 600 emphasizes the importance of clearly stating the division of responsibility for the financial information of the entity in the audit report. This is particularly important when the principal auditor has to rely on the statements and reports of the other auditors. In such cases, the audit report should clearly indicate the extent to which the financial information of components audited by the other auditors have been included in the financial information of the entity.
Finally, it states that this standard on auditing became effective for all audits relating to accounting periods beginning on or after April 1, 2002.
Compatibility with International Standard on Auditing (ISA) 600
The auditing standards, which are a set of guidelines and procedures that auditors use to conduct their work. In this case, the text is specifically mentioning a Standard on Auditing (SA) that has been established, and comparing it to an international standard called ISA 600, which is titled “Using the Work of Another Auditor.”
The auditing standards outlined in the SA 600 are generally consistent with the standards set out in ISA 600. Specifically, it says that they are consistent “in all material respects.” This means that while there may be some minor differences between the two sets of standards, they are largely the same in terms of their overall approach and requirements.
The fact that these two sets of standards are largely consistent is important because it means that auditors who follow the SA should be able to easily understand and apply the standards outlined in ISA 600 if they need to use the work of another auditor. It also means that auditors who are familiar with ISA 600 should be able to work effectively with auditors who follow the SA 600, since the two sets of standards are largely the same.
Quiz: Using the Work of another Auditor
1. What is the responsibility of the principal auditor when using the work of another auditor?
a) Delegate all audit work to the other auditor
b) Take full responsibility for the financial information without relying on the work of others
c) Rely on the work of others while exercising adequate skill and care
d) Have no involvement in the audit of the components performed by the other auditor
Answer: c)
2. When does the standard on using the work of another auditor not apply?
a) When the principal auditor is inexperienced
b) When the financial information of a component is material
c) When the other auditor is a joint auditor
d) When the predecessor auditor is involved
Answer: b)
3. What factors should the principal auditor consider when accepting the appointment as the principal auditor?
a) Materiality, knowledge of the business, and risk of material misstatements
b) Experience of the other auditor, audit fees, and time constraints
c) Number of components, management’s reputation, and audit software compatibility
d) Compliance with statutory requirements, component’s profitability, and staff availability
Answer: a)
4. What does the principal auditor need to ensure when accepting the appointment as the principal auditor?
a) Complete delegation of audit responsibilities to the other auditor
b) Limited participation in the audit of the components audited by the other auditor
c) Adequate knowledge and experience to take responsibility for the overall audit opinion
d) Minimal involvement in the coordination between auditors
Answer: c)
5. Why is effective coordination between the principal auditor and the other auditor important?
a) To shift responsibility from the principal auditor to the other auditor
b) To avoid communication and collaboration between auditors
c) To ensure proper and efficient conduct of the audit
d) To eliminate the need for liaison and written communications
Answer: c)
6. What should the other auditor do to ensure coordination with the principal auditor?
a) Disregard any significant findings during the audit
b) Extend the audit timeline to accommodate the principal auditor’s schedule
c) Respond promptly to the principal auditor’s questionnaire
d) Issue a separate audit report for the components audited
Answer: c)
7. Under what circumstances should the principal auditor express a qualified opinion or disclaimer of opinion?
a) When the other auditor’s report is modified
b) When the principal auditor cannot use the work of the other auditor
c) When the audit timeline is not adhered to by the other auditor
d) When there is a limitation on the scope of audit due to immaterial components
Answer: b)
8. What should the principal auditor consider when the other auditor issues a modified report?
a) The financial information of the entity audited by the principal auditor
b) The significance of the modification in relation to the financial information of the entity
c) The qualifications and experience of the other auditor
d) The reputation of the entity being audited
Answer: b)
9. What is the principal auditor’s responsibility for the work performed by other auditors?
a) Full responsibility for all work performed by other auditors
b) Limited responsibility unless there are reasons to doubt the reliability of their work
c) No responsibility for any work performed by other auditors
d) Shared responsibility for all work performed by other auditors
Answer: b)
10. What does SA 600 and ISA 600 have in common?
a) They both emphasize the importance of joint auditing
b) They have minor differences in their overall approach and requirements
c) They are not compatible and cannot be used together
d) They are largely consistent in their overall approach and requirements
Answer: d)
Additional question:
11. What is the responsibility of the principal auditor regarding the work performed by the other auditors?
a) Take full responsibility for all work performed by other auditors
b) Review the work performed by other auditors without reliance
c) Delegate all audit work to the other auditors
d) Exercise adequate skill and care while relying on the work performed by other auditors
Answer: d)
12. When should the principal auditor state their reliance on the work of the other auditor in the auditor’s report?
a) Only when the other auditor’s work is material to the financial information
b) When the principal auditor delegates work to the other auditor
c) Whenever there is more than one auditor involved in the audit
d) When the principal auditor has no involvement in the audit of the components
Answer: a)
13. What is the purpose of coordinating between auditors when using the work of another auditor?
a) To minimize communication between auditors for efficiency
b) To shift responsibility from the principal auditor to the other auditor
c) To ensure consistency and collaboration in the audit process
d) To eliminate the need for written communications between auditors
Answer: c)
14. What should the principal auditor do if they conclude that they cannot use the work of the other auditor?
a) Express a qualified opinion or disclaimer of opinion
b) Delegate more work to the other auditor to rectify the situation
c) Seek a replacement for the other auditor immediately
d) Disregard the findings and opinions of the other auditor
Answer: a)
15. What factors should the principal auditor consider when determining their own participation in the audit?
a) The fees charged by the other auditor and their level of experience
b) The profitability of the components audited by the other auditor
c) The materiality of the portion of financial information they will audit
d) The timeline set by the other auditor for completing the audit
Answer: c)
16. In cases where the other auditor issues a modified auditor’s report, what should the principal auditor consider?
a) Whether to include the modification in their own report regardless of its significance
b) Whether the modification affects the financial information of the entity as a whole
c) Whether to disregard the other auditor’s findings altogether
d) Whether the modification will impact the audit fees charged by the other auditor
Answer: b)
17. What is the principal auditor’s responsibility regarding the division of responsibility in the audit report?
a) Clearly state the division of responsibility between joint auditors only
b) Avoid mentioning the work of other auditors to prevent confusion
c) Clearly indicate the extent to which the financial information of components audited by other auditors has been included
d) Delegate the responsibility of reporting to the other auditors entirely
Answer: c)
18. What is the purpose of the principal auditor issuing written communications to the other auditor?
a) To highlight the shortcomings and errors in the other auditor’s work
b) To ensure coordination and effective communication between auditors
c) To delegate additional audit work to the other auditor
d) To request the other auditor’s replacement due to inadequate performance
Answer: b)
19. Under what circumstances does the standard on using the work of another auditor become effective?
a) For all audits conducted after April 1, 2002
b) Only for audits where joint auditors are involved
c) When the financial information of the components is immaterial
d) For audits related to accounting periods beginning on or after a specified date
Answer: d)
20. How does the principal auditor establish their opinion on the financial information when using the work of other auditors?
a) By solely relying on the work performed by the other auditors
b) By disregarding the work of the other auditors and conducting their own audit
c) By exercising adequate skill and care while considering the work of the other auditors
d) By delegating the responsibility of forming the opinion to the other auditors entirely
Answer: c)
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Statement on Auditing Standards – SRS 4410
