The International Standard on Auditing (ISA) 600, “Special Considerations – Audits of Group Financial Statements (including the work of component auditors)”, has undergone significant revisions to improve the quality of group audits. These updates are effective for audits of group financial statements for periods beginning on or after 15 December 2023.  For most companies, the new standard will apply for the financial year ended 31 December 2024.

Key changes include:

• Proactive risk-based approach

ISA 600 (Revised) introduces a more proactive risk-based approach to group audits, aligning with ISA 315 (Revised) to ensure consistency across standards. This shift emphasises identifying and assessing risks of material misstatement, planning the audit approach, and performing procedures that respond to assessed risks. Auditors must develop a detailed understanding of the components’ business environments and their impact on the group as a whole. This approach is scalable and adaptable to different group complexities.

• Expanded responsibilities

The group auditor’s responsibilities have been significantly expanded. The group engagement partner is now explicitly responsible for directing, supervising, and reviewing the group audit.  This includes determining the nature, timing, and extent of work needed at the component level and assessing the consolidation process and group-wide controls. The group auditor must ensure that the work performed at the component level is sufficient to support the overall audit opinion.

• Enhanced communication and collaboration

The revised standard calls for closer collaboration and more robust two-way communication between group auditors and component auditors. Group auditors are expected to be actively involved throughout component audits to ensure effective exchange of information and overall audit strategy alignment. Component auditors are now formally integrated into the group engagement team, emphasising their role in the audit process.

• Revised definitions and scope

The revised standard provides a more flexible definition of a component. Additionally, the concept of “significant components” was removed, focusing instead on comprehensive risk assessment. Auditors must carry out the work where risks are identified, based on professional judgment, regardless of whether the component is deemed significant.

• Documentation requirements

ISA 600 (Revised) emphasises the need for more comprehensive documentation of the group auditor’s assessments and decisions regarding the work of other auditors. This includes evaluating the competence and independence of component auditors.

Practical implications for companies

The revised ISA 600 presents several practical implications for companies. They will need to reassess their audit processes to align with the new requirements, which may involve changes in how they coordinate with auditors across different jurisdictions. Companies will also face greater scrutiny as auditors apply a more rigorous approach, necessitating detailed documentation and support for audit procedures. This could lead to increased costs and complexity in managing group audits. To mitigate these impacts, companies can proactively engage with auditors early in the process to understand the new requirements and prepare accordingly.

Practical implications for auditors

The practical implications for auditors are equally significant. The new requirements are likely to result in a significant increase in work effort for auditors, particularly for the group engagement team and partner. Auditors will need to adapt their methodologies to incorporate these changes, potentially requiring additional training and resources to ensure compliance with the revised standard. While the changes present challenges, they are expected to enhance the overall quality of group financial statement audits.

Conclusion

The revisions to ISA 600 represent a significant step forward in enhancing the consistent performance of quality group audits. By strengthening the accountability of group auditors and clarifying the relationship between group and component auditors, these changes aim to support the broader strategy of improving confidence and trust in the auditing profession.

As a firm carrying out group audits, we recognise the importance of these updates in ensuring the accuracy, reliability and transparency of group financial statements. Our team is well-equipped to guide and support our clients through these changes.

For detailed guidance and interpretation of ISA 600 (Revised), please refer directly to the standard or consult a professional. If you require further assistance or have specific questions, our team is available to offer additional support.