ISA 600 – Group Audits

1. ISA 600 – Group Audits Len Jui, IAASB Member and Task Force Chair IAASB Meeting September 2019 Agenda Item 9

2. Task Force Members and Staff • Task Force members • Len Jui, Task Force Chair (supported by Susan Jones) • Robert Dohrer • Rich Sharko (supported by Jamie Shannon) • Wolf Böhm • Josephine Jackson • Dora Burzenski (Correspondent member) • Staff • Jasper van den Hout • Dan Montgomery Page 2

3. Objectives • Obtain the Board’s views on • Key public interest issues • The proposed revisions to ISA 600 (as presented in Agenda Item 9-B) • The proposed approach for certain aspects of the standard, including materiality considerations and ‘stand back’ requirements Page 3

4. Overview Page 4

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6. Outreach • IOSCO C1 Auditing Subcommittee • Supportive of direction of the risk-based approach but will further consider the details • Would like further discussion about how comments raised on ITC have been addressed • Call scheduled for September 23 • Highlighted importance of robust documentation requirements • IFIAR Standards Coordination Working Group • Support for enhancing linkages with other standards • Effect of removal of concept of significant component but referring to 'financially significant’ • Will this change behavior? • Use of engagement partner / engagement team throughout the standard • Scope of standard: will standard apply to a fund-of-funds? • Access issues: clarify what consequences are when there are access issues • Importance of obtaining sufficient audit documentation Page 6

7. Outreach • INTOSAI Financial Audit Subcommittee • Supportive of the risk-based approach and general direction • Various suggestions for enhancements / clarifications • Auditing a group with many non-significant components • Significant components – not clear how new concept should be applied • Component auditors from non-network firms • Communicating KAM by the GET • Basel Committee on Banking Supervision • Supportive of direction of the risk-based approach • Further clarify that group engagement partner is responsible for QM in a group audit • Clarify that engagement team should consider local GAAP/ GAAS • Highlight the importance of two-way communication between GET and component auditors • Supported enhanced understanding of internal control Page 7

8. Outreach and Work Performed Since June Board Meeting • Upcoming outreach • IOSCO Committee 1 Auditing Subcommittee • IAASB Chair, Deputy Chair, Technical Director and ISA 600 TF Chair to meet with IOSCO Committee 1 in person • IFAC’s Small and Medium Practices Committee • Forum of Firms • Global Public Policy Committee • Others • Task force meetings and coordination since the June Board meeting • Task force meetings: one physical meeting and three teleconferences • Coordination meetings: two quality management coordination teleconferences, call with IESBA staff and liaison members, joint call and meeting with ISA 220 TF Chair and Staff Page 8

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10. Consultative Advisory Group • Standard should be principles-based • Support for the risk-based approach • Involvement of component auditors important to identify RoMM • Scope of the standard needs further clarification • Shared service centers do not always neatly fit into the proposed definition of a component • Access issues: clarify the consequences (e.g., possible scope limitation) • Materiality: support for not making broader changes to ISA 320 and including guidance about aggregation risk • Support for many proposals, including: • Stand back requirements • Deleting the definition of ‘significant component’ Page 10

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12. Public Interest Issues • Discussed with the Board in June 2019 • Updated based on input from the Board and PIOB • Key public interest issues are aligned with public interest issues included in the project proposal. • Task Force added two categories • Fostering an appropriately independent and challenging skeptical mindset of the auditor • Reinforcing the need for robust communication and interactions during the audit • Enhanced the wording in several places to address comments • Support from CAG, IOSCO, IFIAR and INTOSAI Page 12

13. Matter for IAASB Consideration Question 1 The IAASB is asked for its views on the enhancements to the key public interest issues. Page 13

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15. Special Considerations Page 15

16. Scope and Structure of the Standard • Unique factors in a group audit – driving the special considerations • An entity with more than one component • Already in extant definition of group: ‘… A group always has more than one component’ • Clarified what is in the scope of this standard – i.e., what is a group • Enhanced definitions of group financial statements and component (which affect the scope and applicability of the standard) • Added application material to further describe the ‘consolidation process’ • The involvement of component auditors • Component auditors may be involved, and if so, special considerations relate to • Communications with, and involvement in the work of, component auditors • Applying the requirements of ISA 220 (Revised) with respect to relevant ethical requirements and the competence and capabilities of the engagement team • Communications with, and involvement in the work of, component auditors (including access issues, if any) • Changed structure – placed all requirements related to using the work of component auditors in one section Page 16

17. Matter for IAASB Consideration Question 2 The IAASB is asked for its views on • The special considerations in an audit of group financial statements, including in relation to the scope of the standard, as discussed in paragraphs 10-23 of Agenda Item 9, and • The proposed structure of the standard as illustrated in Appendix 3 of Agenda Item 9 Page 17

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19. Access Issues • Task Force enhanced application material -- will consider whether more is needed “ISA 600 (Revised) can’t enforce access to people and information, but it can help by developing guidance for situations where access to people or information is restricted” Page 19

20. Matter for IAASB Consideration Question 3 The IAASB is asked for its views on how the Task Force has addressed the issues related to access to people and information Page 20

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22. Matter for IAASB Consideration Question 4 The IAASB is asked for its views on the Task Force’s proposal to delete the definition of group-wide controls as discussed in paragraph 29 in Agenda Item 9 Page 22

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24. Matter for IAASB Consideration Question 5 The IAASB is asked for its views on the requirement for the group engagement partner to review the overall audit strategy and group audit plan, including the alternative of amending ISA 300 to extend the requirement for engagement partner review of the audit strategy and plan to all audits of financial statements. Page 24

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27. Materiality • Task Force had preliminary discussions • IAASB had previously concluded not to make broader changes to ISA 320, Materiality in Planning and Performing an Audit • Matters raised by respondents to the ITC • Concept of aggregation risk is not well understood • Guidance needed on applying the concepts of ‘component materiality’ and ‘component performance materiality’ • Task Force proposes to • Clarify and strengthen the requirements or application material • Provide additional guidance outside of the standard • Practical examples, FAQs, Staff guidance • Update terminology as needed in view of the risk-based approach Page 27

28. Matter for IAASB Consideration Question 6 The IAASB is asked for its views on the following: a) How the concept of aggregation risk could most appropriately be addressed in the revised standard; b) Whether additional guidance should be included in the revised standard regarding the determination of component materiality, component performance materiality and the clearly trivial threshold, or whether such guidance can be provided outside of the standard; c) If there is a view that additional guidance should be included in the revised standard, the nature of such guidance. Page 28

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30. Stand Back Requirements • Task Force had preliminary discussions • Task Force proposes to have a stand back requirement that would: • Be linked to the stand back requirement in ISA 330 • Address the group engagement team’s evaluation of whether SAAE has been obtained to provide a basis for the opinion on the group financial statements • Encompass whether sufficient work has been done in responding to assessed RoMM, including in the work done by component auditors • Guidance to consider whether sufficient work has been done at components that are individually financially significant, including a reference to paragraph 18 of ISA 330 • Task Force also will discuss stand back requirements relating to • Component auditor’s communication (extant paragraph 42) • Adequacy of component auditor’s work (extant paragraph 43) Page 30

31. Matter for IAASB Consideration Question 7 The IAASB is asked for its views on the Task Force’s preliminary suggestion for the stand-back requirement and related application material as described in paragraphs 46–52 in Agenda Item 9. Does the IAASB have further suggestions for the related application material, particularly with respect to the sufficiency of work done at financially significant components? Page 31

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33. Approval of Exposure Draft Way Forward Present full draft to IAASB Publication of Exposure Draft Dec 2019 March 2020 April/May 2020 Page 33