Challenging Global Group Audits: The Perspective of U.S. Group Audit Leads
Posted: 13 Dec 2019 Last revised: 16 Jul 2020
Date Written: June 24, 2020
Regulators are concerned about the quality of group audits due to poor inspection results, recent enforcement actions against component auditors, and the significance of these audits to the global economy (IAASB 2015; PCAOB 2016a). In response, we survey and interview U.S.-based global group audit leads to better understand the group audit process and their perceptions of challenges that arise on such engagements. Our findings indicate that group auditors organize their audits consistent with the client’s structure, which drives component auditor selection, scoping, and fees. Group auditors routinely find fault with component auditors, perceiving that work performed and/or documentation provided is not sufficient, not appropriate and/or not communicated timely, to comply with U.S. standards and reporting deadlines. In some cases, they perceive that the component auditor is unable and/or unwilling to comply; in others, that the component auditor is willing and able, but misunderstands group instructions due to language proficiency or differing interpretation of the standards. Notably this perspective is ethnocentric, as group auditors almost exclusively attribute issues to component auditors. While ethnocentric tendencies appear myopic, they provide insight into unrecognized or overlooked aspects of the global firm model of cooperative arrangements, which are largely unacknowledged in the academic literature.
Keywords: Group Audits; Group and Component Auditors; Multinational Company Reporting; Qualitative
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