Group Audit

A holding company controls several subsidiaries and presents consolidated financial statements, and readers want assurance on the numbers for the group as a whole. A group audit addresses those group statements, including risks that arise from combining the underlying businesses.

The group may span countries, systems and currencies, and local teams may hold records that the central finance function cannot inspect immediately. ISA 600 (Revised) sets special considerations for group audits under International Standards on Auditing, and the IAASB describes a risk-based approach focused on material misstatement of group financial statements.

Its requirements apply in jurisdictions and engagements that adopt the relevant standards. The group auditor needs to understand the group structure and how financial information reaches the consolidated accounts, including which entities are controlled, what reporting framework applies and where material transactions and estimates are made.

Risk drives the work. One small unit may contain a high-risk transaction or weak controls and need focused attention, while a large unit may require extensive procedures, but its revenue alone does not dictate a single universal scope rule.

Component auditors can assist where local knowledge or access is needed, with the group auditor communicating instructions, evaluating their work and addressing gaps, and audits of a subsidiary's local statutory accounts may differ from the work needed for group statements because the group may use a different accounting framework, materiality or reporting date, so a local clean opinion does not automatically resolve every group-level risk. Materiality helps auditors plan and evaluate errors.

The group auditor sets group materiality and may establish lower thresholds for component work to reduce the chance that uncorrected differences add up, and these are audit judgments, not a revenue-percentage formula for owners to set. Consolidation brings its own risks, since parent and subsidiary balances need to reconcile, intragroup transactions and profits may require elimination, and acquisition accounting, goodwill and non-controlling interests can also be significant, while under IFRS 10 consolidated statements present a parent and subsidiaries as one economic entity with specified consolidation procedures that audit work tests against the applicable framework.

Group management should provide a clear reporting manual, chart of accounts, deadlines and standard pack, so that units know the group's policies for revenue, leases, currency and estimates. Intercompany balances are a common example: a parent records a receivable of $5 million while a subsidiary reports a payable of $4.8 million due to timing or currency, and the group must investigate and reconcile before elimination, not simply force the numbers to cancel.

A coverage measure divides the revenue of components receiving specified audit work by group revenue, so $45 million of $50 million is 90%, but this planning indicator does not establish that the remaining 10% is low risk or that the audit meets ISA 600. The group auditor also considers subsequent events and information from component teams, and access and confidentiality across borders can complicate evidence gathering, since local restrictions on working papers or data transfers may affect how teams collaborate and lawful alternatives should be planned rather than discovering the barrier just before the opinion date.

For directors and owners, the auditor's opinion is on the group financial statements under the engagement's scope, not a guarantee that every subsidiary was individually audited in full or that every fraud was detected, and management retains responsibility for the statements and internal controls because auditors test and challenge but do not own the underlying records or consolidation entries. A practical preparation list includes agreed group boundaries, consistent policies, reconciled intercompany accounts, complete component packs and clear contacts, and the best measure of readiness is whether material group risks can be supported with evidence, not a neat coverage percentage alone.