AU-C 600 is the AICPA auditing standard that tells auditors how to handle an audit of group financial statements when more than one entity, subsidiary, division, or investment rolls up into a single set of consolidated numbers. It sets the responsibilities of the group engagement partner, defines how work performed by other auditors at the component level fits into the group opinion, and establishes the rules for scoping, materiality, risk assessment, communication, and reporting across the engagement. A substantially revised version of the standard, issued as SAS No. 149, takes effect for group audits of periods ending on or after December 15, 2026.
What Counts as a Group Audit
A group audit exists whenever the financial statements being audited include financial information from more than one component. Components include subsidiaries, divisions, branches, joint ventures, and equity method investments. Equity method investments sit squarely inside AU-C 600’s scope rather than AU-C 501, which excludes them.
Identifying every component that feeds the consolidation is the first step. Once the group engagement team has that list, it decides what each component needs: a full-scope audit, targeted procedures on specific accounts or transaction classes, or analytical work at the group level. That decision drives everything that follows, including who performs the work and what instructions they receive.
The Group Engagement Partner’s Responsibility
The group engagement partner is responsible for the direction, supervision, and performance of the entire group audit, and that responsibility does not shrink because other auditors are doing work on individual components. The partner must determine whether enough reliable evidence can be gathered across every component to support the opinion on the consolidated financial statements.
Access to component information is the gating issue. If the group engagement partner anticipates restrictions on reaching a component’s records or doubts a component auditor’s professional competence, those problems have to be addressed before the engagement moves forward. When restrictions come from local law rather than management obstruction, the group auditor has workarounds: visiting the component auditor’s location to review documentation in person, reviewing working papers remotely, or asking the component auditor to prepare a detailed memorandum of findings. If none of those alternatives resolves the restriction, a scope limitation exists and the opinion on the group financials may have to be modified or disclaimed.
Assuming Responsibility or Making Reference
One decision shapes the whole engagement: whether the group engagement partner assumes responsibility for the component auditor’s work or makes reference to it in the audit report. The option to make reference is a feature of the U.S. standard and is not permitted under the international counterpart, ISA 600.
When the group engagement partner assumes responsibility, the audit report says nothing about the component auditor. The group auditor takes full accountability for the opinion. The component auditor functions as an extension of the engagement team, and every procedural requirement in AU-C 600 applies in full: setting component materiality, issuing detailed instructions, reviewing working papers, and evaluating findings.
When the group engagement partner makes reference, the audit report discloses the division of responsibility, typically expressed as the portion of total assets or revenues audited by the other auditor. Making reference reduces the group auditor’s responsibility for that component but does not eliminate it. The component auditor still has to be independent of the group, the work still has to comply with relevant auditing standards, and the group auditor still has to perform procedures to confirm the component auditor’s report is suitable for the group opinion.
Setting Materiality for the Group and Its Components
Materiality in a group audit works on several interconnected levels. Group financial statement materiality is the starting point: the largest misstatement that could exist in the consolidated statements without influencing users’ economic decisions. Every other figure flows from it.
Component materiality has to be set lower than group materiality for each component where audit or review procedures will be performed. The reason is aggregation risk. If every component auditor works to a threshold equal to group materiality, the combined undetected misstatements across all components could easily exceed the group figure. The lower component threshold buffers against that scenario. AU-C 600 does not prescribe the allocation method; auditors commonly use proportional or weighted approaches tied to component revenue or size, then adjust for each component’s specific risk profile.
The group engagement team also sets performance materiality for the group as a whole at an amount below group financial statement materiality. Performance materiality accounts for misstatements that exist but have not been detected and guides the extent of substantive procedures on the consolidation. Finally, the team sets a clearly trivial threshold below which misstatements are not accumulated for evaluation, which keeps the engagement from drowning in immaterial differences.
Risk Assessment and Working With Component Auditors
Risk assessment in a group audit runs on two levels at once. At the group level, the engagement team has to understand the group’s structure, the nature of each component, and the risks that come with decentralized operations, varied regulatory environments, and complex intercompany relationships. At the component level, the team assesses the risks of material misstatement for each component where work will be performed and communicates those assessments as part of the instructions to the component auditor.
Group-Wide Controls
The group engagement team evaluates the design and operation of controls that prevent or detect errors in component financial information and in the consolidation itself. These include controls over how component data is collected and consolidated, oversight of decentralized operations, and the risk that component personnel misapply accounting standards or miss events after the component’s reporting date. Where the group runs centralized processing, such as a shared service center handling transactions for multiple components, those controls can be tested centrally and the results applied across the affected components.
Significant Components Under the Current Standard
Under the current AU-C 600, the group engagement team identifies significant components in two categories: those that are individually financially significant to the group, usually measured by total assets, revenue, or earnings; and those that are not individually large but carry a heightened likelihood of material misstatement due to their nature, such as a startup subsidiary in a high-risk market or a component with unusual related-party transactions. SAS No. 149 eliminates this classification mechanism, but auditors applying the current standard still have to perform the step.
Evaluating and Directing the Component Auditor
Before relying on a component auditor’s work, the group engagement team assesses that auditor’s professional competence and independence. This typically involves reviewing the component auditor’s quality management procedures, making direct inquiries, or consulting professional organizations. Doubts about competence force the group engagement team to increase its own involvement, potentially performing procedures directly.
Instructions go out to each component auditor before fieldwork begins. They cover the assigned component materiality, the threshold for accumulating misstatements, specific risks requiring targeted procedures, the required audit procedures, the nature of the expected report, deadlines, and the ethical requirements the component auditor must follow, independence in particular. The component auditor acknowledges the instructions to confirm understanding.
Communication runs both ways through the engagement. For high-risk components, the group engagement team’s involvement may include visiting the component location, participating in risk assessment discussions, meeting with component management, and reviewing selected working papers in areas involving significant risks or complex judgments. For lower-risk components, involvement may be limited to reviewing a summary memorandum and conclusions. When the work is finished, the group engagement team evaluates whether the evidence is sufficient, reviews conclusions on identified misstatements, and confirms the instructions were followed. If the work is insufficient, the team either performs additional procedures itself or directs the component auditor to do so.
Auditing the Consolidation Process
The consolidation itself is a distinct audit area the group engagement team handles directly. Even if every component’s individual numbers are clean, errors in consolidation adjustments, intercompany eliminations, or foreign currency translation can create material misstatements that exist only at the group level.
Intercompany transactions get particular attention. Balances between entities within the group must be identified and eliminated so they do not inflate the consolidated figures. When those transactions cross currencies, the elimination has to use exchange rates from the dates of the original sales or transfers, not the reporting-date rate. Groups with heavy intercompany activity are especially exposed, because the misstatement never appears in any one component’s books.
The team also evaluates consolidation adjustments for items like minority interests, fair value adjustments from acquisitions, and reclassifications. Management judgment is high in these areas, which raises the risk of error. Foreign currency translation for overseas components follows a step-by-step sequence, and assets recognized at the acquisition date of an acquired entity, including goodwill, must be translated under the applicable accounting standards.
What Changes Under SAS No. 149
SAS No. 149 supersedes the current AU-C 600 for audits of financial statements for periods ending on or after December 15, 2026. It is not an incremental update.
The most significant change is the move away from identifying significant components as the primary scoping mechanism. Under the revised standard, the group auditor uses professional judgment to determine which components need procedures based on assessed risks of material misstatement, aligning group audit planning with the risk assessment framework in AU-C Sections 315 and 330.
Key terminology changes with it. “Assuming responsibility” for a component auditor’s work becomes “being involved in the work of component auditors.” The definition of component auditor is revised so that a component auditor is considered part of the engagement team. A new term, “referred-to auditor,” describes an auditor who performs an audit of a component’s financial statements and whose work the group engagement partner references in the group audit report; a referred-to auditor is explicitly not part of the engagement team and is not a component auditor. “Group auditor” replaces “group engagement team” for the partner and other engagement team members who are not component auditors.
SAS No. 149 also emphasizes two-way communication, clarifying that the group auditor’s interaction with component auditors must cover ethical requirements, competence assessments, and the appropriate extent of the group auditor’s involvement. Documentation requirements are enhanced, and the standard clarifies that component auditor working papers generally do not need to be replicated in the group auditor’s file unless law or regulation requires it.
Reporting, Communication, and Documentation
The group engagement partner forms the opinion on the group financial statements based on the totality of evidence gathered across all components and the consolidation. The question is whether sufficient appropriate audit evidence has been obtained to reduce group audit risk to an acceptably low level.
When the group engagement partner has assumed responsibility for all component auditors’ work, the report makes no mention of those auditors. When the partner makes reference, the report discloses the division of responsibility and typically notes the magnitude of the financial statements audited by the other auditor. Under SAS No. 149, the referenced auditor becomes a referred-to auditor with distinct procedural requirements, but the option to divide responsibility remains available.
The group auditor also has to address subsequent events between the date of a component’s financial information and the date of the group auditor’s report. Events in that gap can require adjustment or disclosure in the consolidated financial statements, and missing them is a common source of audit deficiencies. Going concern has to be considered both for the group and for individual components whose failure could materially affect the consolidation.
On the governance side, the group auditor communicates an overview of the planned scope and timing of the group audit, including planned involvement in the work of component auditors, significant risks identified during planning, significant difficulties encountered, and matters raised by component auditors that merit the governance body’s attention. Deficiencies that look immaterial at a single component can become significant when viewed across the group or when combined with similar findings elsewhere.
Documentation has to support the group engagement partner’s conclusions. That includes the analysis of components that drove scoping decisions, the materiality levels established for the group and each component, the instructions communicated to component auditors, the evaluation of each component auditor’s work, the procedures performed on the consolidation, and the resolution of any deficiencies identified along the way.