Who Appoints the Component Auditor?

In group audits, especially those involving multinational or multi-entity organizations, different auditors may be involved to examine specific subsidiaries or business units—known as components. These auditors are referred to as component auditors. A common question that arises is: Who appoints them? The answer depends largely on the structure of the group and the group auditor’s overall audit strategy.

Role of the Group Auditor in Appointing

Typically, the group auditor selects, approves, or at least has significant input in the appointment of the component auditor. Since the group auditor is responsible for forming an opinion on the consolidated financial statements, they must ensure that the component auditor is competent, independent, and capable of performing the necessary audit work to an acceptable standard.

In many cases, especially when group auditors have global networks or affiliates, they may assign component audit work to other auditors within their network. This ensures better communication, consistency, and quality control.

Key Considerations for Appointment:

• Professional competence and experience of the component auditor
• Independence and adherence to ethical standards
• Familiarity with local regulations and financial reporting frameworks
• Ability to coordinate effectively with the group auditor

Use of Existing Local Auditors

In some cases, existing local auditors who already audit the component entity may be retained. This usually happens when:

• The component is in a jurisdiction where the local auditor has a deep understanding of the regulatory environment
• There are cost or logistical advantages to using auditors already engaged with the entity
• The group auditor assesses and accepts the quality of the local auditor’s work

When existing auditors are used, the group auditor must decide whether to take full responsibility for their work (treating them as component auditors) or reference them separately as referred-to auditors in the audit report.

Conclusion

The group auditor typically appoints or approves the component auditor, guided by audit planning needs, quality expectations, and the complexity of the group structure. In some cases, pre-existing local auditors may be used if their work aligns with the group auditor’s strategy. Ultimately, the choice aims to ensure audit quality and effective coverage of all material components within the group.