- Effective for periods ENDING after 12/15/2012
- Definition of “component” for purposes of this SAS is not the same as “component unit” although a component unit is a part of a “component”
- Operational, organizational, & legal considerations need to be considered.
- Indicators of a component:
- Another auditor does part of the audit
- Separate legal entity
- Separate governance structure
- Outsourced operations
- Equity method investment
- Additional considerations for a government:
- Components need to be evaluated within each opinion unit
- Where there is another auditor or legally separate entity, these are automatically a component
- Pension or OPEB trust funds are likely components
- Departments within a major fund that are separately managed may also be components
- Identify & assess risks of material misstatements at GROUP level
- Identify significant accounts & disclosures at GROUP level
- Identify significant components
- Determine timing & type of audit work to be done at significant & non-significant components
- Determine nature, timing, & extent of work to be done at GROUP level
- Based on individual financial significance
- Use a benchmark & percentage (like calculating tolerable misstatement)
- Also if risk of material misstatement exists even if not individually financially significant
- Do they understand & will comply with ethical requirements (including independence)
- Professional competence
- Will need to be evaluated through date of overall audit report
- Have component unit auditor update subsequent event procedures from date of their audit report to date of overall audit report
- It may be advisable for management of primary government enter into a written agreement with the component unit that they will request their auditors to perform these procedures & forward results to primary government (group) auditor
- If CU auditor refuses to do these procedures, will need the component unit management to provide information to group auditor to be able to evaluate subsequent events
- Request written representation from CU management
- Review interim F/S, budget to actual reports
- Inquire of CU management
- Read CU minutes
- Etc
- Confirm that they will cooperate
- They will follow ethical requirements including independence
- They will provide a list of related parties
- They will communicate to group auditor matters relevant such as findings, conclusion, opinion,
- They will provide a list of passed AJEs so group auditor can assess effect at group level
- Group engagement team must gain sufficient understanding of group, components, & environment to:
- Type of work to be done on components
- Involvement of other auditors
- Any limitations on access to information
- Fraud or suspected fraud at component
- Identifying Significant Components
- Understand Component Auditor
- Subsequent events for component
- Communication with Component Auditor (existing letter may need to be expanded somewhat)
- Document all of these procedures
- Communicate with those charged with governance (planning stage)
