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SA 600 — Using the Work of Another Auditor

Picture this: Rajesh & Co. Pvt. Ltd. is a large company with a head office in Mumbai and three subsidiaries in Chennai, Kolkata, and Hyderabad. The Mumbai auditor (say, CA Mehta) is responsible for the consolidated financial statements — but he cannot personally fly to every branch and audit each subsidiary. So he relies on local auditors at each subsidiary. SA 600 governs exactly this situation.

The auditor doing the overall audit is called the principal auditor. The auditors handling individual components (subsidiaries, branches, divisions) are component auditors (or 'other auditors'). SA 600 lays down what the principal auditor must do before he can place reliance on the component auditor's work — he can't just blindly trust it.

Here's the core rule: the principal auditor remains responsible for his audit opinion on the consolidated statements. He cannot escape this by saying "the Chennai auditor checked that part." Before relying on a component auditor's work, he must: (1) assess the professional competence of the component auditor — is he a qualified CA? reputable? (2) communicate clearly — send written instructions about materiality, audit approach, timeline, and what information is needed; (3) review the component auditor's work — check his working papers, significant findings, and whether his scope was adequate. If the principal auditor is satisfied, he may rely on the work. In his audit report, he may mention that part of the audit was conducted by another auditor — this is a division of responsibility disclosure, not a qualification.

The critical exception to memorise: if the component is not material to the consolidated statements, the principal auditor need not apply SA 600 procedures at all — materiality is the threshold. Also, if the principal auditor himself audits a branch directly, there is no 'other auditor' involvement. This is asked frequently as a 5-mark theory or scenario question in Paper 5 — often framed as 'What procedures should the principal auditor perform before relying on the work of a component auditor?'

📊 Worked example

Example 1 — Identifying applicability of SA 600

CA Priya is the principal auditor of Sunrise Holdings Ltd. The consolidated balance sheet shows total assets of ₹50,00,00,000 (₹50 crores). There are two subsidiaries:

  • Sunrise South Pvt. Ltd. (audited by CA Venkat, Chennai) — total assets ₹2,00,00,000 (₹2 crores)
  • Sunrise North Pvt. Ltd. (audited by CA Sharma, Delhi) — total assets ₹20,00,00,000 (₹20 crores)

Working:

  • Sunrise South = ₹2 cr / ₹50 cr = 4% of consolidated assets → likely immaterial
  • Sunrise North = ₹20 cr / ₹50 cr = 40% of consolidated assets → clearly material

Answer: CA Priya must apply SA 600 procedures for Sunrise North (material component). For Sunrise South, she may use judgement — at 4%, it is likely below materiality threshold and SA 600 procedures may not be mandatory, though she should document her decision.

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Example 2 — Communication requirement

CA Mehta (principal auditor) is relying on CA Venkat's audit of a subsidiary with revenue of ₹8,00,00,000 (₹8 crores). Overall group materiality is set at ₹50,00,000 (₹50 lakhs).

Working:

CA Mehta must send CA Venkat a written communication specifying:

1. Materiality for the component: CA Mehta may set a lower component materiality, e.g., ₹30,00,000 (₹30 lakhs) (conservatively lower than group materiality)

2. Areas requiring special attention: related party transactions, revenue cut-off

3. Timeline for submission of findings

4. Format of information required

Answer: CA Mehta sets component materiality at ₹30 lakhs and sends written instructions to CA Venkat. He later reviews CA Venkat's working papers and findings before signing the consolidated audit report.

⚠️ Common exam mistakes

  • Students think the principal auditor is absolved of responsibility for the component. Wrong — under SA 600, the principal auditor always remains responsible for his audit opinion. Component auditor's work reduces his workload, not his accountability.
  • Confusing 'division of responsibility' with a qualified opinion. Mentioning in the report that another auditor audited a component is a disclosure of division of responsibility — it is NOT a qualification. Don't write 'the audit report is modified because another auditor was used.'
  • Forgetting that materiality determines applicability. If a subsidiary is immaterial to the consolidated financials, the principal auditor is not required to follow SA 600 procedures. Students often apply SA 600 to every component regardless of size.
  • Skipping the communication step in answers. Exam questions ask 'what must the principal auditor do?' — most students list review and assessment but forget the written communication / instructions to the component auditor, which is a key procedure.
  • Assuming SA 600 applies only to subsidiaries. SA 600 applies to any component — branches, divisions, associates, or joint ventures — wherever a separate auditor has been engaged. Don't limit your answer to subsidiaries only.
📖 Reference: SA 600 — Institute of Chartered Accountants of India
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