Transnational audit and audit risk 2 / 2

Transnational audit and audit risk

Application of auditing standards

Although many countries of the world have adopted International Standards on Auditing (ISAs), not all have done so, choosing instead to use locally developed auditing regulations. 

In addition, some countries use modified versions of ISAs. 

This means that in a transnational audit, some components of the group financial statements will have been audited using a different auditing framework, resulting in inconsistent audit processes within the group, and potentially reducing the quality of the audit as a whole.

Regulation and oversight of auditors

Across the world there are many different ways in which the activities of auditors are regulated and monitored. In some countries the audit profession is self-regulatory, whereas in other countries a more legislative approach is used. 

This also can impact on the quality of audit work in a transnational situation.

Financial reporting framework

Some countries use IFRS, whereas some use locally developed accounting standards. 

Within a transnational group it is likely that adjustments, reconciliations or restatements may be required in order to comply with the requirements of the jurisdictions relevant to the group financial statements (i.e. the jurisdiction of the parent company in most cases). 

Such reconciliations can be complex and require a high level of technical expertise of the preparer and the auditor

Corporate governance requirements and consequent control risk

In some countries there are very prescriptive corporate governance requirements, which the auditor must consider as part of the audit process. 

In this case the auditor may need to carry out extra work over and above local requirements in order to ensure group wide compliance with the requirements of the jurisdictions relevant to the financial statements. 

However, in some countries there is very little corporate governance regulation at all and controls are likely to be weaker than in other components of the group. 

Control risk is therefore likely to differ between the various subsidiaries making up the group