Acceptance and planning

In this lesson

1. 0:00 Group audit acceptance and planning
2. 1:16 Understanding group structure and controls
3. 2:13 Materiality at group and component level
4. 3:07 Defining significant components
5. 4:02 Financial significance benchmark
6. 5:18 Audit approach by component significance
7. 6:37 Worked example: Clothing Group case study

About this lesson

You'll explore how to identify significant components within a group, understand the role of component auditors, and determine the appropriate audit approach based on financial significance and risk. This is essential knowledge for the Audit and Assurance module, particularly when dealing with consolidated financial statements and group consolidation processes. The session covers the core planning requirements for group audits: understanding the group structure and its components, the reporting framework, internal controls specific to consolidation, and materiality at both group and component levels. You'll learn that component materiality is always lower than group materiality, and that different components may be audited by different firms or offices. The planning process mirrors single-entity audits but requires additional consideration of how instructions flow from parent to components and how the consolidation process itself operates. A crucial skill you'll develop is identifying significant components. The lesson introduces a practical 15% benchmark: any component representing more than 15% of profit, revenue, or assets is considered financially significant. However, significance also depends on risk—some components may pose a material misstatement risk despite being smaller. For financially significant components, a full audit is required. For components with significant risk but lower financial significance, you have flexibility to perform either a full audit, audit specific transaction classes, or targeted procedures on risk areas. Insignificant components can be addressed through analytical procedures at group level. The worked example using Clothing Group and its subsidiary Bosu Company illustrates how to apply these principles in practice.

Duration: 8m