Deciding your approach to a group audit is like a lead prosecutor building a complex RICO case. You're responsible for the final verdict, but you rely on evidence gathered by different field offices—each with its own lead agent. AU-C 600 is the rulebook that dictates how you must vet those agents, review their evidence, and ultimately present the consolidated case to the jury.
AU-C 600 governs a group auditor's responsibility to obtain sufficient appropriate audit evidence for consolidated financial statements that include components audited by other firms. The standard requires the group auditor to determine the scope of their involvement with each component auditor and dictates the specific reporting options, such as making reference to another auditor's work.
Key facts
- Governing Standard: AU-C Section 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors).
- Official Body: AICPA (American Institute of Certified Public Accountants).
- Exam Section: Auditing and Attestation (AUD).
- Primary Goal: Obtain sufficient appropriate audit evidence on component financial information and the consolidation process to support the group audit opinion.
- Key Reporting Decision: Whether to assume full responsibility for a component auditor's work or make reference to their audit in the group audit report.
- Report Impact of Reference: Modifies the Basis for Opinion section; it does not change the group auditor's ultimate responsibility for the opinion.
What Is AU-C 600 and Why Does It Matter on the AUD Exam?
AU-C 600 provides the framework for auditing group financial statements, which are the combined statements of a parent company and its subsidiaries or other components. The standard establishes the lead auditor, the group auditor, as the firm responsible for the overall audit opinion. It then dictates how that group auditor must plan, perform, and conclude on the work done by other component auditors.For the AUD exam, this isn't about memorizing definitions. It’s a test of professional judgment. The AICPA wants to see if you can think like a group engagement partner facing real-world constraints. They will give you scenarios and force you to decide the right audit approach based on risk, materiality, and your ability to gather evidence.
The biggest mistake candidates make is thinking the decision to "make reference" to a component auditor is the main event. It’s not. The main event is obtaining sufficient appropriate audit evidence. The group auditor always retains full responsibility for the group audit opinion. Making reference in the report simply clarifies that another firm audited a piece of the financials, but it doesn't absolve the group auditor from performing rigorous procedures to ensure that work can be relied upon. You can see how these judgment calls are tested with VoraPrep's practice questions.
Studying for CPA AUD? Benchmark your score in 5 minutes.
Get an instant weak-spot assessment and a custom 12-week study plan PDF generated for your exam window.
The Group Audit Process: A Judgment-Based Framework
The group engagement partner must obtain sufficient appropriate audit evidence to express an opinion. This involves a clear, multi-step process that prioritizes evidence over reporting.Step 1: Acceptance, Planning, and Materiality
Before accepting a group audit, the partner must determine if they can reasonably expect to obtain the necessary evidence. If management restricts access to component auditors or their work, you should decline the engagement.A critical planning step is setting materiality. The group auditor determines:
- Group Materiality: Materiality for the consolidated financial statements as a whole.
- Component Materiality: Materiality for individual components. This is set lower than group materiality to reduce the risk that aggregate misstatements in the components exceed group materiality.
Step 2: Understanding the Component Auditor
You cannot simply trust another firm's work blindly. AU-C 600 requires the group engagement team to understand the component auditor's:- Professional Competence: Do they have the skills and knowledge of the relevant standards (e.g., U.S. GAAP, GAAS)?
- Independence: Do they meet the same ethical and independence requirements expected for the group audit?
- Regulatory Environment: Are they subject to active regulatory oversight?
You must also obtain written representations from the component auditor confirming their compliance with these requirements.
Step 3: Determining Component Significance and Audit Scope
The group auditor must identify "significant components." A component can be significant due to its individual financial size or because it presents specific risks of material misstatement to the group.The work required depends on this significance:
- For Significant Components: The group auditor must be involved in the component auditor's risk assessment and perform further audit procedures on significant risks. This involvement is mandatory and can range from reviewing work papers to directing specific tests. Performing a full audit of the component yourself is an option, but not the only one.
- For Non-Significant Components: The group auditor performs analytical procedures at the group level.
The Core Reporting Decision: Assuming Responsibility vs. Making Reference
After planning and performing the audit work, you arrive at the reporting decision. This choice is based on your level of involvement and whether you obtained sufficient evidence.| Criteria | Assume Full Responsibility | Make Reference in the Audit Report |
|---|---|---|
| When it's appropriate | You were sufficiently involved in the component auditor's work (or did the work yourself) and obtained enough evidence to take full responsibility. | The component auditor audited the component under GAAS or PCAOB standards, and their report is not restricted as to use or distribution. |
| Group auditor's work | You must review the component auditor's work, meet with them, and be satisfied with their procedures and findings. | You must still evaluate the component auditor's competence and independence, and be satisfied their work is adequate for your purposes. |
| Impact on audit report | The report is a standard, unmodified report. There is no mention of the component auditor. | The Basis for Opinion section is modified to state the group opinion is based in part on the component auditor's report. The magnitude (e.g., % of assets/revenue) audited by them is disclosed. This is not a qualification of the opinion. |
This decision is a direct reflection of the audit work performed.
Worked Example: Navigating a Scope Limitation
This is where the exam separates passing scores from failing ones. Let's walk through a realistic Task-Based Simulation scenario. Scenario: Prime Audit Partners is the group auditor for Atlas Global Corp.'s 2026 consolidated financial statements. Atlas has a significant, wholly-owned subsidiary, Oceanic Logistics, in a country that recently passed a strict data sovereignty law. Oceanic is audited by a local firm, Seaside CPAs, who are competent and independent. The new law prohibits any external party, including Prime, from accessing or reviewing work papers related to customer data, which are essential for auditing Oceanic's revenue recognition. Seaside had full access to perform their audit, but they cannot share these specific work papers with Prime. Oceanic constitutes 30% of Atlas Global's total revenues.What is the effect on Prime Audit Partners' report on the consolidated financial statements?
Check Your State’s Exact CPA Exam Requirements
Every state has different credit hour, ethics, and residency rules. Use our 55-jurisdiction checker to verify your eligibility before applying.
Let's apply the AU-C 600 framework.
Step 1: Identify the Core Issue. The problem is a scope limitation. A law prevents the group auditor (Prime) from obtaining sufficient appropriate audit evidence regarding a material account (revenue) of a significant component. Step 2: Can Prime "Assume Responsibility"? No. To assume responsibility, AU-C 600.12 requires the group auditor to be involved in the work of the component auditor. This includes reviewing their audit documentation. Since Prime is prohibited from reviewing key work papers, they cannot meet this requirement. Step 3: Can Prime "Make Reference" to Solve the Problem? This is the classic exam trap. Making reference is a reporting option when you have obtained sufficient evidence. It is not a remedy for a lack of evidence. Even if Prime makes reference to Seaside's audit, Prime is still faced with a scope limitation because they themselves were unable to review the work or perform alternative procedures on 30% of the group's consolidated revenue. Step 4: Evaluate the Impact on the Group Audit Opinion. Since there's an unresolved scope limitation, Prime must follow the guidance in AU-C 705, Modifications to the Opinion in the Independent Auditor's Report. The decision hinges on whether the limitation's effect is material and pervasive.- Materiality: The issue relates to 30% of consolidated revenue. It is clearly material.
- Pervasiveness: A limitation is pervasive if it's not confined to specific accounts or if it is fundamental to the users' understanding of the financial statements. An inability to audit a third of the company's revenue is arguably fundamental.
This example shows that AU-C 600 is a gateway to other critical standards. Your ability to connect the dots to reporting modifications is what the exam truly tests.
How AU-C 600 Connects to Other AUD Topics
Group audit questions rarely exist in a vacuum. They are designed to test your integrated knowledge of the auditing standards.- AU-C 320 (Materiality): Your understanding of setting group and component materiality is foundational.
- AU-C 315 & 330 (Risk Assessment): Identifying significant components is a risk assessment procedure. Your involvement in a component's audit is driven by the risks you identify.
- AU-C 700 & 705 (Reporting): As the example showed, a problem in a group audit (like a scope limit) can directly lead to a modified opinion. You must know when to qualify, disclaim, or issue an adverse opinion. For a deeper dive, review our guide to auditor communications.
Exam Day Strategy: The AU-C 600 Decision Tree
When a group audit question appears, don't panic. Mentally walk through this logic:- Significance: Is the component significant? This determines the minimum level of involvement required from you, the group auditor.
- Evidence: Can I get sufficient appropriate audit evidence? Consider your access to the component auditor, their work, and their client's information.
- Scope Limitation?: If you can't get the evidence, you have a scope limitation. Don't ignore it.
- Reporting: Only after you've assessed the evidence do you decide on reporting. If evidence is sufficient, choose between assuming responsibility or making reference. If evidence is insufficient, determine if the resulting scope limitation requires a qualified opinion or a disclaimer.
Mastering this flow is essential for success on the AUD section of the CPA exam.