Referred-to auditor vs component auditor
A component auditor works inside the group engagement team. The group auditor directs and takes responsibility for that work, without referring to it in the report. A referred-to auditor is outside the team, audits a component on its own, and has its audit referenced in the group report. The group auditor chooses between those approaches.
Referred-to auditor vs component auditor, side by side
Both auditors work on part of a group. The group auditor directs one firm's work and refers to the other's report.
| In a group audit | Component auditor | Referred-to auditor |
|---|---|---|
| Part of the engagement team | Yes | No |
| Directed by the group auditor | Yes | No, that firm performs its own audit |
| Firm named in report | No | GAAS: optional; PCAOB: yes |
| Responsibility divided in report | No | Yes |
The AICPA sets those definitions in SAS 149 for audits under generally accepted auditing standards. The AICPA issued it to replace AU-C 600 for group audits of periods ending on or after December 15, 2026. Under GAAS, the group auditor may name the referred-to auditor only with that firm's express permission and with its report presented alongside the group report.
The PCAOB draws the same line for fiscal years ending on or after December 15, 2024. The lead auditor supervises an other auditor under AS 1201 as a member of the engagement team, and leaves a referred-to auditor under AS 1206 unsupervised and outside it.
What a component auditor does
A component auditor performs audit procedures on one part of the group, such as a subsidiary, a branch or a division. The component may be in another country, report under a different framework, or answer to a different regulator. The component auditor works to the group auditor's instructions.
Tests what the group auditor asks for.
Revenue, inventory, fixed assets or whichever balances the group auditor assigns to that component.
Reports to the group auditor.
That firm sends findings, significant risks and misstatements to the group auditor.
Provides the documentation the group auditor requests.
The group auditor reviews the relevant work and uses it as evidence for the single opinion on the group financial statements.
When the group auditor makes reference instead
The group auditor can divide responsibility with another firm and refer to that firm's audit in the report. That firm becomes the referred-to auditor. In the report, the group auditor identifies the audited component and its magnitude; under GAAS, naming the firm is optional.
For audits under PCAOB standards, the lead auditor meets the conditions in AS 1206 for fiscal years ending on or after December 15, 2024:
- It obtains written representations that the other firm is independent and licensed.
- It determines that the consolidation has been tested.
- It identifies that firm by name in the report.
- It discloses how much of the statements that firm audited.
Under the international standards the option does not exist. An auditor reporting under the ISAs may not refer to another auditor in the report unless law or regulation requires it.
What SAS 149 changes
Under AU-C 600, for periods ending before December 15, 2026, both firms are component auditors, whether the group auditor assumes responsibility or makes reference. From that date, the AICPA splits them under SAS 149: a component auditor is part of the engagement team, and a referred-to auditor is not. A component auditor can be a network firm, an unrelated firm or another office of the group auditor's own firm. Under SAS 149 the group auditor also chooses where to perform procedures by assessed risk, and no longer identifies significant components. Read any older guidance with that in mind.
Who directs each auditor in a group audit
Each auditor's place in a group audit
One opinion on the group financial statements, and two ways another firm can be involved.
Group financial statements
One opinion, signed by the group auditor
Inside the group engagement team
Group auditor
Plans the group audit, sets the instructions, signs the report
Component auditor
Audits a component under the group auditor's direction. The group auditor makes no reference to that firm in the report
Outside the engagement team
Referred-to auditor
Audits a component and issues its own report. The group auditor divides responsibility in the report and refers to that firm's audit
Terms as defined in SAS 149, effective for group audits of periods ending on or after December 15, 2026. Dimov Audit
Related group audit reading
- What component auditing involves
- Statutory audits for US subsidiaries of a foreign parent
- Financial statement audits
- PCAOB audits
Treat the information as general guidance, not advice for your circumstances. Ask a CPA to look at your group structure before you agree how a component will be audited.
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Reviewed by George Dimov, CPA. Dimov Audit audits companies that consolidate subsidiaries and divisions into one set of financial statements, across all 50 states.