a. Planning and Controlling the Group Audit

1. Risk Assessment:
   • Identify significant risks at both the group and component levels, such as financial misstatements in Hybrid and Habenaro.
2. Materiality Determination:
   • Establish materiality for the group as a whole and set component materiality for each subsidiary, considering the relative size and risk of each entity.
3. Communication with Component Auditors:
   • Issue clear instructions to component auditors about audit scope, timelines, and reporting requirements.
4. Coordination and Supervision:
   • Arrange meetings and regular updates with component auditors to monitor progress and address significant findings.
5. Consolidation Procedures:
   • Review and test consolidation adjustments, ensuring proper treatment of intra-group transactions and eliminations.
6. Audit Timelines:
   • Ensure alignment of component audit schedules with the group’s reporting deadlines.

b. Impact of Issues on the Group Audit

1. Hybrid’s Losses and Control Problems:
   • Impact: Hybrid poses a significant risk due to its losses, control issues, and high staff turnover. The qualified opinion from the component auditor must be assessed for material impact on the group accounts.
   • Response: Perform additional procedures, including reviewing adjustments made by management and assessing disclosures related to Hybrid in the consolidated financial statements.
2. Cayenne’s Financial Year-End Misalignment:
   • Impact: Differences in year-ends create timing and reporting inconsistencies. Adjustments for the period from October to December 2013 must be made.
   • Response: Obtain management accounts for the additional period and perform necessary audit procedures to verify the adjustments.
3. Habenaro Sale Post-Year-End:
   • Impact: The sale qualifies as a subsequent event. It must be disclosed if material, and its classification as a discontinued operation should be considered.
   • Response: Review sale agreements, assess valuation of assets, and ensure appropriate disclosures are made in the group financial statements.
4. Loan Guarantees:
   • Impact: Loan guarantees increase the group’s financial exposure, potentially requiring additional disclosures and provisions.
   • Response: Verify guarantees’ terms, assess management’s assumptions about their potential liabilities, and confirm appropriate treatment in the financial statements.

c. Relationship with Component Auditors

1. Extent of Reliance on Component Auditors’ Work:
   • ISA 600: The group auditor is responsible for the overall group audit and must evaluate the component auditors’ competence, independence, and work quality.
   • Review component auditors’ workpapers to ensure consistency with group-level audit requirements.
2. Joint Audits:
   • When joint audits are conducted, responsibilities are shared between the auditors, but clear boundaries for scope, accountability, and communication must be established.
3. Considerations for Reliance:
   • Assess the risk of material misstatements at the component level.
   • Conduct further procedures if the group auditor determines that the component auditor’s work does not sufficiently address identified risks.
   • Establish effective communication channels for resolving issues and ensuring consistency in audit opinions.