The component auditor is the one who works as an auditor for the component financial statement. To better understand the concept of component auditor, it’s important to understand the following terms.

Group auditor – Group auditor is the main auditor of the group and is responsible for auditing consolidated financial statements.

Component auditor is the auditor for the associates, branches, joint ventures, subsidiaries, and non-controller entities forming part of the group. The components’ financial statement numbers are consolidated with the main financial statement.

Responsibility of group auditor with perspective to component audit

The following are the responsibilities of the group auditor for the audit of component financial statements.

Audit planning

1. Review the work performed by the component auditor and be satisfied with the audit quality conducted by the component auditor.
2. Assess whether the group auditor will be able to obtain sufficient and appropriate audit evidence reasonably in the context of consolidation and other information presented in the component financial statement.
3. Determine competence, ethical considerations, capability, and confirmation of coordination of the component auditor.
4. Determine the component to work on (applicable in case of more than one component in the group structure). The determination of the component to work on may be influenced by various events/factors, such as acquisitions, significant changes in accounting policies, major related party transactions, and abnormal fluctuations identified in account balances.
5. Set component materiality.

Communication with component auditor

1. Communicate specific information the group auditor considers critical.
2. Compliance, non-compliance, corrected, uncorrected misstatements, management fraud indication, possible management bias, internal control deficiency, significant matters, overall findings, and conclusion on the overall audit.

Consolidation of main FS with component FS

1. Understand the span of judgment in the consolidation and assess risk accordingly.
2. Understand control applied to the consolidation process.
3. Analyze group structure and ensure appropriate component classification regarding associates, joint ventures, subsidiaries, etc.
4. Confirm the accuracy of the figures consolidated in the main financial statement.
5. Review essential disclosures like related parties, minority interests, and other components.
6. Gather evidence for the goodwill calculation, canceling intragroup transactions, related provisions, fair value adjustments, and foreign currency conversion where applicable.

Review of the audit working papers prepared by the component auditor

1. Go through the working papers of the component auditor.
2. Review the documented risk and how it was covered via the execution of audit procedures.

Conclusion

The component auditor is responsible for auditing the components in the group structure. The component may be a joint venture, associate, subsidiary, etc.

The group auditor is required to plan the audit, communicate their understanding/requirements with the component auditor, review the consolidation process, and review the audit working papers prepared by the component auditor.