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An important concept in the audit is about using the work of another auditor which is covered by Standards of Auditing 600 ('SA 600'). In an organization there could be subsidiaries, joint ventures, associates, branches or business units audited by another auditor, may or may not be a professional within India but also outside India. The reports of these professionals are required by the auditor of the entity when forming an opinion on the financial statements and to give a report on the true and fair view.

Typical Scenarios

SA 600 - Using the work of another auditor

Scenario 1

Say A Co., Ltd., has a subsidiary in US and in UK. These are subjected to audit CPA or CA of the respective countries. The question is - can the auditors of A Co., limited when they are expected to form an opinion on the consolidated financial statements, rely upon the auditors of the respective subsidiaries.

In this scenario, auditors of A Co., Ltd., needs to have comfort on the numbers that are getting consolidated and hence would have to look for the audited financial statements. Having said that, the financial statements could have been prepared under US GAAP or UK GAAP and hence may not be possible to consolidate under Indian GAAP as it is. They are expected to know about Indian GAAP and other requirements of financial reporting and hence the auditors of A Co., Ltd., would issue ' Group Audit Instructions' , which is discussed separately, to enable the auditors of the subsidiaries (or components) to have visibility of the expectation of the auditor of the holding company and carry on the audit procedures accordingly. Here, the auditors of the subsidiaries are called as component auditors and auditor of A Co., Ltd., is called as the principal auditor.

Scenario 2

Say B Bank Ltd., has thousands of branches which are audited by respective branch auditors and whose reports are available to the auditors at the corporate office who are expected to give opinion on the standalone financial statements.

Banks are regulated in India by Reserve Bank of India largely. The audit of Banks is quite different from the audit of any other company and therefore, the structure of audit, their roles and responsibilities also differ. In case of banks, the branch auditors prepare the report and give to the respective branches (in turn to the management), which is then used by the auditors at the corporate office (also called as Statutory Central Auditors) for the purpose of reporting.

In both the cases, the principal auditors bring out in the ' Other Matter' paragraph of their audit report, that they have relied upon the work of component auditors or branch auditors, as the case may be, in discharge of their duties.

Who is a Principal Auditor?

Normally, the auditor of the financial statements, who is entitled to rely upon the work of another auditor or component auditor and by the participation in the overall audit (considering the volume of financial information is audited, risks of material misstatement of the components, degree of knowledge of business and other procedures that needs to be carried out) procedure. Before relying upon the work of another auditor, the principal auditor is expected to consider professional competence and ensure that the procedures carried out by the other auditor is sufficient and appropriate to the engagement.

Group Audit Instructions

How does the principal auditor set expectations to other auditors? Well, by issue of Group Audit Instructions which require specific mention of areas of high risk, special importance, inter-company / component transactions, significant accounting policies, including request to share significant findings of risk assessment, rectifications in the financial statements, etc., Typically, the principal auditor issues the group audit instructions at the start of the engagement (planning stage) and may also have a meeting with other auditors to ensure they have common understanding of the engagement and document the findings. The principal auditor should also obtain a representation on compliance with the group reporting requirements.

What if the other auditor has modified the audit report?

The principal auditor needs to consider how the modification in the component auditor's report would impact the consolidated financial statements (for the audit of the financial statements of the component) or the standalone financial statements (in case using say branch auditor's report). Standard also leaves to the discretion of the principal auditor whether any supplemental test of records or the financial statements of the component is further required, depending on the circumstances.


The principal auditor has to document the fact of relying upon the work of another auditor, their significance in the financial information of the entity as a whole, conclusions reached by the component's auditor and how the same is dealt in the principal auditor's report together with the reasons as to why the principal auditor has not considered not modifying their report when the component auditor has given a modified report. The principal auditor should also communicate to those charged with governance that their report would also include that they have relied upon the work of another auditor and it' s implications on the overall reporting of the entity.


If the principal auditor concludes that the work of the other auditor cannot be relied upon and further the principal auditor has not been able to perform sufficient audit procedures regarding the financial information of the component, the principal auditor should express a qualified opinion or disclaimer of opinion because this would tantamount to limitation on the scope of audit.


Further update

In audit report in rest of the geographies typically in Europe, one would see that the principal auditor is also giving information on how much of the group's accounts were audited by them, risk assessment practices, materiality level at the group level etc.,which in my view would find inroads even in our standards, in a matter of time.

Encourage to read SA 600, Guidance Note on Audit of Consolidated Financial Statements by ICAI.


The author Aditya Kumar S is a qualified Chartered accountant with 20+ years of experience in his field. He carries immense knowledge in his areas of expertise and interest, namely statutory audit, internal audit and SOX audit gained through numerous and varied client assignments he has dealt with. He is a partner in South India's well-known mid-size firm.

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