cated in that country. Frequently, these requirements extend only to companies that
meet certain size requirements, normally total assets, annual revenue, or turnover
and, occasionally, number of employees. The most common practice is to have most
or all statutory audit requirements fulfilled by the audit firm responsible for auditing
the group consolidated financial statements (i.e., the principal auditors).
However, this is not a requirement, even in circumstances where the audit com-
mittee, management and the board of directors of the company desire to have re-
sponsibility for the audit of the group financial statements vested in a single firm of
auditors. Depending on the significance of individual operations to the group finan-
cial statements, the principal auditor may require audit procedures to be performed
for those operations only occasionally or not at all. In effect, the audit scope is es-
tablished in the context of the consolidated group financial statements. In such cir-
cumstances, the statutory audit requirements for those operations may be fulfilled ei-
ther by the principal auditors or other auditors.
REVIEWS OF INTERIM FINANCIAL INFORMATION. If reviews of quarterly or semiannual fi-
nancial information are required or desired by the company, there are several ques-
tions that must be addressed:
- Are the reviews to be performed on a “timely” basis, that is, contemporaneously
with and immediately following the preparation of the interim financial infor-
mation, or on a basis to coincide with completion of the annual audit? - Are written reports to be issued?
- If such reports on the reviews are to be issued, will they be available to share-
holders or otherwise publicly?
INTERIM FINANCIAL REPORTING. The timing of work to be performed by the auditors will
vary depending on the answers to these questions. For public companies based in the
United States, the SEC now requires timely prefiling reviews of interim financial in-
formation. Additionally, the extent of the interim review procedures is established
in the context of the group financial statements, so the auditor may require proce-
dures to be performed at some operating units or locations only occasionally or not
at all.
Further, the extent of reporting to the company on the results of the reviews may
vary from the standard written reports prescribed by professional standards to oral or
informal reporting to management or the board of directors on the results of the re-
view and related observations that the auditors have for the company. The SEC does
not require written reports or reviews of interim financial information from auditors.
OTHER REPORTING REQUIREMENTS. Frequently, there are statutory or other reporting re-
quirements for the parent company or individual subsidiaries beyond those involved
in the audit of the group financial statements. Such requirements may result from
contractual requirements (e.g., lease or other debt agreements) or statutes of individ-
ual countries. The latter area includes audits of employee benefit plans for which re-
porting standards have been increasing significantly in recent years, thus requiring
greater efforts on the part of both companies and their auditors. In addition, countries
other than the United States are now also requiring audits of such plans.
Further, reporting on compliance with legal regulations, company bylaws, proper
31.2 ESTABLISHING EXPECTATIONS 31 • 5