SA 600 Revised: Impact on Group Audit Engagements in India
AuditJuly 2024By CA Pragati Goel
The Institute of Chartered Accountants of India (ICAI) has revised Standard on Auditing (SA) 600 — 'Using the Work of Another Auditor'. The revised standard significantly changes responsibilities in group audits and brings Indian standards closer to the International Standards on Auditing (ISA) 600.
What is SA 600?
SA 600 deals with situations where a principal auditor uses the work of another auditor for components of a group financial statement. In group audit engagements — where a parent company's statutory auditor relies on subsidiary auditors — SA 600 governs the responsibilities, communications, and procedures required.
Key Changes in the Revised SA 600
The revised SA 600 introduces the concept of 'group audit' more explicitly. The group engagement partner (GEP) now has significantly more direct responsibility for the work of component auditors. There is a greater requirement for direct communication with component auditors, including access to their working papers if necessary.
Enhanced Responsibilities for Group Auditors
Group auditors can no longer merely 'refer to' component auditors without taking responsibility. The GEP must now understand the component auditor's environment, evaluate their competence, and in some cases, perform additional procedures. This is a major shift from the old regime where group auditors could disclaim responsibility for subsidiary audits.
Documentation Requirements
The revised standard requires comprehensive documentation of: group audit strategy and scoping decisions, communications with component auditors, results of procedures performed on components, and the group auditor's conclusions on component work. Audit committees and CFOs should expect more rigorous documentation requests.
Implications for Audit Committees
Audit committees of listed and large unlisted companies should understand these changes. The group auditor's report will now reflect a more comprehensive view. Audit timelines may increase as component auditors need to provide more information. Budget for audits of group entities may increase.
Our Audit Practice
Our audit practice, led by CA Pragati Goel with Big 4 experience at PwC, EY, and Deloitte, is fully equipped to handle group audit engagements under the revised SA 600. We bring institutional rigour and clear communication protocols to every group audit engagement. Contact us to discuss your group audit requirements.
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SA 600 (Revised) — "Special Considerations — Audits of Financial Statements of Group Entities" — is ICAI's updated standard governing group audits in India. It aligns India's group audit standards with the IAASB's revised ISA 600, introducing significant new requirements for group engagement teams (GETs) and component auditors. The revised standard applies for audits of financial statements for periods beginning on or after 1 April 2024. It introduces a risk-based approach to component identification, more robust documentation requirements, and clearer communication protocols between GETs and component auditors.
Under revised SA 600, the Group Engagement Team (GET) must: (1) identify all components — significant and non-significant — using a defined methodology, (2) assess the component auditor's competence and independence before relying on their work, (3) communicate component audit instructions including group-wide materiality and scope, (4) review component auditor working papers for significant components, (5) evaluate the sufficiency of the component audit evidence for the group opinion, and (6) maintain documentation of all communications with component auditors. The GET bears final responsibility for the group audit opinion regardless of what component auditors report.
SA 600 (Revised) requires the GET to establish: (1) Group Materiality — for the consolidated financial statements as a whole, (2) Component Materiality — for each component, which must be lower than group materiality (typically 50-75% of group materiality), and (3) Performance Materiality — for detecting errors. Component materiality may vary across components based on their nature and relative significance to the group. The GET must also determine a Threshold for Aggregation — below which misstatements at component level are considered inconsequential. These thresholds drive the nature and extent of audit procedures at each component.
Revised SA 600 requires significantly more documentation including: documentation of component identification methodology, risk assessment for each significant component, communication sent to and received from component auditors, review notes on component working papers, evidence of the GET's evaluation of component auditor findings, and the basis for the group audit opinion. The documentation must demonstrate that the GET has obtained sufficient appropriate audit evidence for all components included in the consolidated financial statements. Shahi & Co. conducts group audits for multi-entity corporates, maintaining complete SA 600-compliant documentation.