Audits of consolidated financial statements: New requirements due to ISA 600

Group-wide audit team

The Main Technical Committee (Hauptfachaussschuss - HFA) of the Institut der Wirtschaftsprüfer in Deutschland e. V. (IDW) has adopted a modified version of ISA 600 (Revised) to include national particularities under the title "Special considerations - audits of consolidated financial statements (including the activities of component auditors)".

One of the key changes to ISA 600 (Revised) concerns the concept of a group-wide audit team. According to this, a joint team is to act to audit the consolidated financial statements, which strengthens the involvement and responsibility of the group auditor. The group auditor is now fully responsible for the management and quality of the entire group audit. Even if audit procedures for group companies or sub-areas are performed by other auditors, the main responsibility remains with the group auditor. An amended definition of "sub-area" enables a more flexible delimitation of the sub-areas for audit planning and execution.

The changes have an important impact on risk assessment, cooperation with divisional auditors, and documentation requirements. The extended scope of responsibility of the group auditor means that the auditor is more involved at both the group and sub-divisional levels.

Extended risk assessment

One focus of ISA 600 (Revised) is on an extended risk assessment. The group auditor is therefore responsible for gaining a sufficient understanding of the meaning of ISA [EN] 315 (Revised 2019) as the basis for the risk assessment. They are also responsible for identifying and assessing the risks of material misstatement in the consolidated financial statements, including the consolidation process. Its risk assessments therefore relate initially to the level of individual items in the consolidated financial statements and subsequently to the level of individual sub-areas.

Consequently, the standard places more emphasis on the identification and assessment of risks and the response of the group auditor based on this. This is intended to improve audit quality in the interests of all stakeholders and to focus specifically on relevant risks. The group auditor should carry out a detailed risk assessment at the group level and provide comprehensive guidance to the component auditor to effectively implement the audit strategy and audit plan.

Cooperation with the sub-area auditors

In addition, the group auditor must be actively involved in the planning and execution of the component audits to ensure that all audit activities comply with the requirements of the revised auditing standard. Accordingly, increased communication and coordination between the group auditor and the component auditors is required to ensure an effective exchange of information and to align the component audits with the overall strategy and plan of the group audit.

Extended documentation requirements

The extended documentation requirements under ISA 600 (Revised) entail an increased workload. They are aimed at ensuring the quality and traceability of the audits performed. More extensive and detailed documentation is required to ensure that the audit is traceable at all times and fulfills high-quality standards.

First-time application

ISA [EN] 600 (Revised) applies for the first time to the audit of financial statements for periods beginning on or after 15 December 2024, i. e. for the first time for the financial year 2025. Voluntary early application for periods beginning on or after 15 December 2023, i. e. for the first time for the financial year 2024, is permitted.

Conclusion

The revised version of ISA 600 entails significant changes that are intended to strengthen the role of the group auditor and improve the overall quality of the audit. With a stronger focus on risk assessment and communication as well as extended documentation requirements, the implementation of the new regulations will represent a challenging but necessary development for the practice of auditing consolidated financial statements. This will require even closer coordination between the group auditor and the divisional auditors in the future. In the case of international group structures, this requirement can be covered by a globally more integrated network, which is characterised by uniform processes, standards, and instruments. In addition to uniform quality standards worldwide, RSM has a uniform Global Audit Methodology (GAM), uniform processes, and audit tools and thus fulfills the extended requirements. This is a decisive advantage when it comes to supporting internationally organised groups of companies.

Julian Breidthardt, Torben Rohland