Managing Group Audit Risk in a Multicomponent Audit Setting

SUMMARY This article summarizes “Managing Group Audit Risk in a Multicomponent Audit Setting” (Graham, Bedard, and Dutta 2018), who address a long-standing issue in audit practice that remains a concern of regulators and auditors in the current environment. Specifically, how can auditors demonstrate that sufficient evidence has been gathered to support the auditor's opinion when the entity comprises multiple components and when sufficient evidence cannot be attained by selecting all or just a few large components for examination? The model presented in the original paper conforms to the general principles of multicomponent audits in auditing standards literature. By explicitly documenting assumptions used in applying the model, the auditor articulates the elements of judgment going into scoping decisions regarding the number of components selected and the extent of procedures to be performed at those locations. Here, we show a simple example illustrating the model, while the original paper contains computation details and more complex scenarios.