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Chapter 10 4

Planning and risk assessment

3.1 Understanding the client

The group auditor must:

 Enhance its understanding of the group, its components and their environments
including group-wide controls, obtained during the acceptance/continuance
stage.

 Obtain an understanding of the consolidation process, including instructions
issued by group management to components.

 Assess the risks of material misstatement.

 Confirm or revise its initial identification of components that are likely to be
significant.

3.2 Significant components

A significant component is identified by using an appropriate
benchmark (such as assets, liabilities, cash flows, profit, revenue). The
benchmark is a matter of auditor judgment. Some auditors may
consider a component to be significant if it exceeds normal materiality
thresholds.

ISA 600 Special Considerations – Audits of Group Financial Statements (Including
the Work of Component Auditors) requires the auditor to perform a full audit of
components which are classed as significant components.

Analytical procedures (rather than a full audit) may be performed on components
which are not significant.

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