AG ISA (NZ) 600

The Auditor-General’s Statement on Special Considerations – Audits of Group Financial and Performance Information (Including the Work of Component Auditors)

At a glance

This standard differs from the underlying standard ISA (NZ) 600 (XRB website) in that:

  • if you are a Group Appointed Auditor or a Component Appointed Auditor some aspects of ISA (NZ) 600 do not apply; and
  • the Group Appointed Auditor needs to look out for issues in non-public entity components that are related to effectiveness and efficiency, compliance with laws and regulations, waste, and a lack of probity or financial prudence. These issues need to be reported to the Sector Manager at the OAG.

Introduction

Scope of this Statement

  1. This Auditor-General’s Auditing Statement applies to group audits where the parent is a public entity in New Zealand and:
    1. establishes the Auditor-General’s requirements in relation to ISA (NZ) 600: Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors) (ISA (NZ) 600);1 and
    2. provides additional guidance to reflect the public sector perspective.
  2. This Statement clarifies the extent to which the requirements in ISA (NZ) 600 apply to the annual audits of public entity groups, which is illustrated in Figure 1. Clarity is needed because:
    1. ISA (NZ) 600 does not apply to the audits of public entity groups (where all the entities in the group are public entities) because all public entities are audited by one auditor, the Auditor-General; and
    2. ISA (NZ) 600 does apply to the audits of some public entity groups, where:
      • a New Zealand-domiciled component is not a public entity; and
      • a public entity group includes a component domiciled in an overseas jurisdiction (which may be controlled or not controlled).
  3. A controlled entity domiciled in an overseas jurisdiction (subsequently referred as a controlled overseas component) is not a public entity.2 Nonetheless, those charged with governance and the management of the parent public entity are expected to ensure that a controlled overseas component operates with regard to the principles of probity and financial prudence, operates effectively and efficiently, complies with statutory obligations, and minimises waste. As a result, it is expected that the Group Appointed Auditor will, as part of meeting the requirements contained in AG-3, request component auditors to maintain the same level of awareness and alertness for issues or risks as outlined in AG-3: The Approach to Issues Arising from section 16(1) of the Public Audit Act 2001.

Application

  1. Compliance with this Statement is mandatory for Appointed Auditors who carry out annual audits on behalf of the Auditor-General. This Statement requires compliance with the requirements of ISA (NZ) 600 in the context of the Auditor-General (as the auditor of all public entity groups), and the requirements of this Statement.
  2. This Statement applies to audits of financial statements and/or performance information that have been prepared for reporting periods beginning on or after 1 April 2023, although earlier application is encouraged.

Objectives

The Group Appointed Auditor’s objective when a component is a public entity

  1. The objective of the Group Appointed Auditor is to:
    1. work co-operatively with Component Appointed Auditors of all components that are public entities, as if the Group and Component Appointed Auditors are part of the same audit firm, rather than complying with all of the requirements of ISA (NZ) 600; and
    2. obtain sufficient and appropriate audit evidence to form an opinion on the group financial and performance information.

The Component Appointed Auditor’s objective when a component is a public entity

  1. The objective of the Component Appointed Auditor is to work co-operatively with the Group Appointed Auditor, as if the Group and Component Appointed Auditors are part of the same audit firm, to enable the Group Appointed Auditor to obtain sufficient and appropriate audit evidence to form an opinion on the group financial and performance information.

The Group Appointed Auditor’s objective when a component is not a public entity

  1. The objective of the Group Appointed Auditor is to work with the component auditors of all non-public entity components in accordance with the requirements of ISA (NZ) 600 and the alternative requirements contained in this Statement, in order to obtain sufficient and appropriate audit evidence to form an opinion on the group financial and performance information.

The Group Appointed Auditor’s objective when a component is a controlled overseas component

  1. In addition to the objective in paragraph 8, the objective of the Group Appointed Auditor is to ensure that AG-3 is appropriately applied to the audit of the Group, including controlled overseas components.

Definitions

  1. For the purpose of this Auditor-General’s Auditing Statement, the defined terms listed below have the following meanings:
Component Appointed Auditor
means the auditor appointed by the Auditor-General who carries out the annual audit of a subsidiary or component that is a public entity, on behalf of the Auditor-General.
Component auditor
means, as defined in ISA (NZ) 600, an auditor who, at the request of the group engagement team, performs work on the financial and performance information related to a component for the Group audit.
Component that is a public entity
means a subsidiary or component of a public entity (or entities) that is a public entity as defined in the Public Audit Act 2001.
Component that is not a public entity
means a subsidiary or component of a public entity (or entities) that is not a public entity as defined in the Public Audit Act 2001. This may include:
  • a controlled overseas component; or
  • a component that is not controlled by a public entity (or entities) and is domiciled either in New Zealand or an overseas jurisdiction.
Group Appointed Auditor
means the auditor appointed by the Auditor-General who carries out the annual audit of the public entity group, on behalf of the Auditor-General.

Figure 1 – Scope and application of this Statement to each component within a public entity group

AG ISA NZ 600 Figure 1

Requirements

When components are public entities

  1. In developing the overall audit strategies and audit plans for the group in accordance with the requirements in AG ISA (NZ) 300,3 the Group Appointed Auditor shall work with Component Appointed Auditors as if they are part of the same audit firm to obtain sufficient and appropriate audit evidence in the most efficient way to be able to form an opinion on the group financial and performance information. To do this, the Group Appointed Auditor shall have regard to the requirements contained in ISA (NZ) 600 but take into account the Auditor-General’s processes and standards that apply to the work of Component Appointed Auditors, including:
    1. taking account of the engagement acceptance and continuance requirements in AG PES 3, instead of meeting the requirements of paragraphs 12 to 13 of ISA (NZ) 600 on acceptance and continuance;
    2. taking account of the requirements in AG ISA (NZ) 210 to confirm the terms of the audit engagement, instead of meeting the requirement of paragraph 14 of ISA (NZ) 600 on agreeing the terms of audit engagement;
    3. taking account of the requirements in AG ISA (NZ) 300 to incorporate the information and instructions contained in the applicable audit brief in their overall audit strategy and audit plan, in addition to the requirements of paragraphs 17 and 18 of ISA (NZ) 600. In meeting this requirement, the Group Appointed Auditor may need to understand the information and instructions outlined in the applicable audit brief used by Component Appointed Auditors and work with them in their audit planning procedures;
    4. taking account of the fact that Component Appointed Auditors are required to comply with the ethical, independence and professional competence requirements in the Auditor-General’s Code of Ethics, instead of meeting the requirements of paragraphs 19(a), 19(b) and 40(b) of ISA (NZ) 600, when obtaining an understanding of the Component Appointed Auditor’s professional competence and in communicating the ethical and independence requirements that are relevant to the group audit; and
    5. taking account of the requirements in AG ISA (NZ) 320, when meeting the requirements of paragraphs 21, 22, and 23 of ISA (NZ) 600.
  2. In meeting the requirements of paragraph 11 of this statement, the Group Appointed Auditor may, in rare circumstances, need to review the audit files of a Component Appointed Auditor. In this situation, the Component Appointed Auditor shall provide access to the Group Appointed Auditor.

When components are not public entities

The component is not a public entity

  1. The Group Appointed Auditor shall carry out their audit in accordance with the requirements of ISA (NZ) 600 but shall comply with the engagement acceptance and continuance requirements in AG PES 3 instead of meeting the requirements of paragraphs 12 to 13 of ISA (NZ) 600 on acceptance and continuance for group audits.

The component is a controlled overseas component

  1. In addition to the requirement in paragraph 13, the Group Appointed Auditor shall request the component auditor to appropriately consider and report to the Group Appointed Auditor any issues or risks required to be identified under AG-3. This will normally require the Group Appointed Auditor to add additional material to the instructions sent to the component auditor to ensure that they appropriately consider and report any issue or risk required to be identified under AG-3.
  2. Where this approach is not possible, the Group Appointed Auditor may need to assess whether those charged with governance of the parent public entity actively monitor compliance with AG-3 issues and risks within the controlled overseas component and determine whether any additional auditing procedures and/or reporting is necessary.
  3. The Group Appointed Auditor shall report AG-3 issues and risks raised by the component auditor, in keeping with the requirements contained in AG-3.

When there are difficulties with the audit of a group

  1. Group or Component Appointed Auditors shall immediately contact the Assistant Auditor-General – Audit Quality if they:
    1. have any difficulties in applying this Statement;
    2. identify that the work of a Group Appointed Auditor, Component Appointed Auditor, or component auditor may be insufficient, in accordance with paragraph 43 in ISA (NZ) 600; or
    3. are considering communicating with management or those charged with governance concerns about the quality of the component auditor’s work, in accordance with paragraph 49(c) in ISA (NZ) 600.

1: The ISA (NZ) Auditing Standards are scoped so that they apply to audits of “historical financial information”. However, for the purposes of the Auditor-General’s Auditing Standards and Statements, all references to “historical financial information” should be read as the audit of “historical financial and historical performance information”.

2: This definition reflects the general principle of statutory interpretation that legislation does not have extraterritorial effect, unless the legislation expressly says that it does or that extended application is necessary to achieve the purpose of the legislation. The Public Audit Act does not meet these criteria.

3: Paragraphs 7, 8 and 10 in AG ISA (NZ) 300 require all Appointed Auditors to consider the relevant public sector perspective when developing their overall audit strategy and audit plan.