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Group auditing: Tiger pride enterprises

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  1. Various factors lead to the conclusion that the audit on Tiger Pride Enterprises constitutes a group audit
  2. The components of the group audits would be divisions and not the business units
  3. There are various other units that pose a significant risk to the financial statements of the group
  4. The purpose of doing a risk assessment

Conventionally, in auditing, a component is a business activity for which the group or component management provides financial information to be included in the financial statements of the group. Group financial statements refer to the combined aggregated financial statements of the components that are under the control of the group. An audit that is conducted on the group's financial statements is called the group audit. In this regard, various factors lead to the conclusion that the audit on Tiger Pride Enterprises constitutes a group audit (Journal of Accountancy, 2015).

[...] Therefore, a group audit for Tiger Pride Enterprises should include only the financial statements of the business units as its components. Collings defines a significant component as one that is of individual financial significance to the group with reference to some specific nature of circumstances (2011). In his case, this component may include significant misstatement to the group's financial statements. Notably, the fact that a component is not material does not imply that the component is directly insignificant. In some cases, Budescu, Peecher and Solomon (2012) claim that a component may be of less material yet present a significant risk of misstatement of the financial statements of the group. [...]

[...] Unit however, is included as financially significant because it is encountering low margin that is subject of discussions by the corporate management. Moreover, some of its goods have been returned as defective and the management has established that the top management of the unit may be pressuring the workers to the extent that they sell defective goods. Therefore, if the returned goods are not accounted for may make the audit report miss some important facts and also provide inaccurate estimates for the sales that may significantly affect the financial statements of the group of as a whole. [...]

[...] To include the component however, the auditor must expressed permission from the component's auditor, and that the report of the component auditor shall be presented with that of the auditor in the financial statements of the group. A 51 of the CAS 600 provides some factors that are to be considered in this process (Journal of Accountancy, 2015). Among others, auditor should consider the extent of evidence that may be obtained from the financial information of the significant components, newly formed components, effects of works performed by internal auditors in the components, whether the components are applying similar processes and systems and the effect of the controls of the corporate management to specific components. [...]

[...] In the case of Tiger Pride Enterprises, there is a need to perform some specific analytical procedures on the non-significant components for various reasons. First, many of the divisions, that is Division A-C have many business components such that the business units summarized under one category do meet that benchmarks and the threshold that has been used as select individual financially significant units. This implies that as a group they meet the threshold benchmark and if left out of the audit they may pose a significant risk of misstatement to the overall group financial statements. [...]

[...] (2015).PCAOB 8 Audit Risk.Wiley Practitioner's Guide to GAAS 2015: Covering all SASs, SSAEs, SSARSs, PCAOB Auditing Standards, and Interpretations, 881-882. Glover, S. M., & Wood, D. A. (2014).The Effects of Group Audit Oversight on Subsidiary Entity Audits and Reporting.Available at SSRN 2117889. Journal of Accountancy,. (2015). Clarifying the standard for group audits. [...]

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