Audits of consolidated financial statements: New requirements due to first-time adoption of ISA [DE] 600 (Revised)

published on 6 December 2024 I reading time approx. 3 minutes

On October 1st, 2024 the Main Technical Committee (Hauptfachausschuss, HFA) of the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer, IDW) approved the revised standard on auditing dealing with special considerations on audits of group financial statements (ISA [DE] 600 (Revised)), thereby adopting the international standard on auditing ISA 600 (Revised), supplemented by national particularities, into German Generally Accepted Standards for Financial Statement Audits (Grundsätze ordnungsmäßiger Abschlussprüfung, GoA). The standard is effective for audits of group financial statements for periods beginning on or after December 15th, 2024.

ISA [DE] 600 (Revised) specifies how the latest concepts of the risk-based audit approach and the revised professional standards on quality management are to be applied to audits of consolidated financial statements. Furthermore, it outlines the requirements of the engagement partner to take the overall responsibility for managing and achieving quality on the group audit engagement.

The adoption of the concept of a group-wide engagement team, which is initially based in the professional standards on quality management, requires the group engagement partner to take responsibility for the direction and supervision of component auditors and the review of their work worldwide. This will regularly result in an increased involvement of the group auditor in the work of component auditors.

Possible actions of an increased involvement comprise for example audit procedures specified or performed by the group auditor, extended reporting requirements of component auditors, the scheduling of regular status meetings and a more intense review of working papers. In addition, a rising number of participations of group auditors in meetings with component management can be assumed.

Another aspect arising from the concept of a group-wide engagement team is that ISA [DE] 600 (Revised) allows a more individualized approach regarding the planning and execution of the audit of group financial statements, tailored to the respective group. This is also reflected in the new definition of components, which are henceforth determined through professional judgment of the group auditor. The previous requirement, that a component can only be a business activity for which group or component management prepares financial information that should be included in the group financial statements no longer applies. In addition, the previous distinction in significant and not significant components and the associated scopes of work to be performed will no longer apply. This allows an allocation of risk assessment and further audit procedures depending on size and complexity of the audited entity and its components and therefore allows the planning and performing of more effective and efficient audits.

In summary, the extent to which the first-time adoption of ISA [DE] 600 (Revised) affects audits of consolidated financial statements varies depending, among others, on size, structure and complexity of the group. An early communication between the group auditor and the audited entities is strongly recommended to analyze the effects on an individual basis. It can be assumed that, despite the opportunities of a more individualized planning and execution of the audit, the enhanced requirements - particularly regarding the involvement of the group auditor in the work of the component auditors - will tend to lead to higher expenditure of personnel and time on all sides.