Group responsibility and the three phases
A group may include subsidiaries or branches. Under the source’s historical SSA600, the group partner directs, supervises and performs the engagement and remains responsible for an appropriate report. A component clearance or signed statements alone are insufficient. ACRA identifies planning failures in component identification, materiality and timely instructions; execution failures in obtaining and assessing evidence; and completion failures in retention. Planning should start with an updated understanding of group operations and comparison of current and prior information, not assumed continuity. The 2015 bulletin supplements standards and should not be confused with later revised SSA600 provisions.
Example one: use benchmarks suited to the group
For a high-volume, low-margin contract manufacturer, revenue measures management performance and may be as relevant as profit. FY2014/FY2013 profit contributions were holding company 21%/21%, X42%/51%, Y12%/11% and Z25%/17%; revenue contributions were 13%/13%,16%/30%,58%/46% and 13%/11%. Applying the historical suggested 15% threshold only to profit selected the parent, X and Z but missed Y, despite its majority revenue share. Consider both revenue and profit and qualitative risks, significant balances, transactions and disclosures. The 15% suggestion is not a universal statutory rule or a reason to ignore qualitative significance.
Example two: assign component materiality deliberately
Component materiality depends on size, significance, controls and misstatement experience. The source says individual materiality should not exceed group materiality and its worked examples require it to be lower; the sum of component amounts can exceed group materiality. In the deficient example, only group materiality of 5 million (currency unspecified) was set, leaving components to choose. One statutory audit used a figure 20% above group materiality. The group team should assign an appropriate amount, assess any proposed use of local statutory materiality and evaluate component performance materiality. Leaving the choice unassessed risks missed work, unreported misstatements and incomplete aggregation.
Plan instructions, competence and access before relying on work
The group team should assess component-auditor competence and determine work, involvement and file review appropriate to risks. Timely instructions should include current developments, significant risks, component materiality, specific procedures and expected communication format. Consider access before acceptance. Under the quoted historical SSA210/600 provisions, management restrictions expected to cause a disclaimer require declining unless law prevents it; where decline is prohibited, audit as far as possible and disclaim. Later access problems may require management-assisted direct work or a modified opinion. The rule concerns sufficient evidence, not automatic acceptance because a component auditor has a prominent name.
Example three: late instructions and unanswered requests
Listed subsidiary H supplied 85% of revenue and 78% of profit, shared 31 December year-end with parent X and used Big Four component auditor M. Group auditor A had acted since 2008 but never received requested deliverables or file access. H issued its report inMarch 2015, while group reporting occurred inJuly. A used 6 million for both group and component, relied on an old FY2013 audit-committee report obtained inFebruary 2015 and sent instructions on 2 April with 28 April deadline. AJune call, SGX announcements and consolidation reconciliation did not establish sufficient work. Appropriate action was lower component materiality, current risk discussions, specific additional work, follow-up with management, access and evidence evaluation, or scope-limitation reporting. Past unanswered requests were not a basis to repeat the deficient process.
Example four: explain evidence and the group conclusion
Bare yes/no clearances or inconsistent planning and summary risks do not show nature, timing, extent and results. In the inventory example, the summary merely listed ageing, cost recalculation and cut-off with no exceptions. Fuller evidence explained a build-up for two large post-year-end orders, a three-year shelf life, 1.5 million older stock, a 1.3 million provision and supported discounted recovery of 0.2 million. The group conclusion connected that work to reasonable valuation. If the component already provided adequate analytical documentation, duplication was unnecessary. The aim is sufficient evidence of assessment, not copying the same explanation repeatedly.
Example five: record why an impairment conclusion changed
A28 January 2015 file review supported 10 million PPE impairment, but draft statements showed 15 million. A14 February call followed, yet all matters resolved was inadequate documentation. The example explains that the first DCF was a draft and a later site-closure plan caused additional 5 million (currency unspecified) impairment. The component checked completeness using opening PPE, remaining lives and site-specific machine listings; the group CFO confirmed shutdown. Record the additional work and why the group concurs, rather than merely the meeting outcome. The source’s shutdown-date placeholder is not an actual date, and its mention of discussing with the group auditor in this table is an apparent drafting inconsistency; the surrounding example concerns component-auditor discussion.
Example six: retain involvement evidence without requiring all foreign files
The group file in Singapore should explain component work and the group’s adequacy assessment. The footnote expressly says retaining copies of every component paper is neither SSA600’s requirement nor ACRA’s expectation, including where foreign law restricts copying. In a loss-making component, simply writing concur no impairment after visiting files is insufficient. The example’s five-year forecast uses 3% growth in 2016,5% in 2017/2018 and 3% in the remaining years. Evidence includes a new three-year contract inQ42015, pricing, margins, vendor quotations and milestone allocation; capacity rises 55% to 72%, and three years of budgets usually matched actuals. Record reasoning on growth, discount rates, terminal value and sensitivities. The example fully develops growth evidence but leaves discount-rate text unfinished, so its missing conclusion should not be invented.
Example seven: challenge a low discount rate
Detailed component reporting does not remove the group’s duty to evaluate relevance and sufficiency and obtain additional procedures where needed. Recalculating management’s 3% rate and agreeing no impairment was not enough. Compare that conclusion with declining conditions, lost customers and idle capacity; test the rate against the local risk-free rate and similar businesses, and perform sensitivity analysis. A higher rate could materially change impairment. If component analysis is absent, request it or perform it at group level. Newly identified control deficiencies may also require renewed risk assessment and work. The 3% is illustrative, not a recommended rate.
Example eight: assess accounting-policy differences
Group instructions asked for IFRS clearance and conversion of construction revenue from completed-contract to percentage completion. The package still used completed-contract, and component auditors wanted a separate fee for IFRS work. Assuming one-year contracts meant no material difference was inadequate. Discuss proper adjustments with management, agree component clearance where possible, or assess GAAP differences and the need for group adjustments and audit. This is the source’s historical accounting-policy example, not a current revenue-standard application guide.
Example nine: resolve outstanding matters before signing
For 31 December 2014 reporting, interim deliverables were due 30 November 2014, finals 25 February 2015, and subsequent-event review and group signing 31 March 2015. The memo arrived 5 April. Unresolved matters included a bank confirmation and receipts from two debtors representing 15% of assets. The component contributed 20% of revenue; an uneventful variance analysis was not a substitute. The late memo revealed a major customer’s 15 December 2014 bankruptcy, affecting receivable recovery and impairment revenue forecasts. Before signing, obtain an updated resolution memo or document discussions and adequacy; receive subsequent-event work or directly investigate delay and potential material events. Completion also requires sufficient evidence, clearing significant matters, all deliverables and aggregated evaluation of uncorrected misstatements.
Apply evidence principles to joint audits
AGS10 addressed joint-auditor roles, procedures, quality control, communication and records. Although work is divided, joint auditors are jointly and severally responsible for the audit and opinion and should retain evidence of the other auditors’ work in their own files. The group principles of timely involvement, sceptical evaluation, follow-up and sufficient retained evidence also support joint work. They do not permit responsibility to disappear through allocation. The source repeats paragraph 19 for its conclusion; this editorial numbering does not create another substantive requirement.
Official source
This article independently explains the substantive contents of the official PDF, including the relevant conditions, procedures and annexes. The linked document remains the authoritative source for its original wording, and later changes should be checked separately.
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