AU-C section 600 covers audits of group financial statements, which are financial statements that include the financial information of more than one entity or business unit through a consolidation process. SAS No. 149, Special Considerations — Audits of Group Financial Statements (Including the Work of Component Auditors and Audits of Referred-to Auditors), supersedes the extant section 600 and applies to audits of group financial statements for periods ending on or after December 15, 2026. A calendar-year audit for 2026 is the first one affected.
This page paraphrases the standard. Read AU-C 600 as revised by SAS 149 in AICPA Professional Standards before relying on any point here. The comparison with the prior approach below draws on AICPA and Journal of Accountancy descriptions of SAS 149.
Why does this matter to a small or mid-sized firm?
A client with a parent and two subsidiaries, a holding company with an operating company and a real estate entity, or an entity with an equity-method investee in the statements is a group. The standard applies whether or not another firm is involved, though some requirements apply only when component auditors are used.
What is the objective of AU-C 600?
The auditor's objectives, in broad terms, are to determine whether to act as the auditor of the group financial statements, and to communicate clearly with component auditors about the scope and timing of their work and their findings. The auditor also obtains sufficient appropriate audit evidence regarding the financial information of the components and the consolidation process to express an opinion on the group financial statements.
What changed under SAS 149?
AICPA and Journal of Accountancy summaries describe these headline changes.
| Area | Prior approach | SAS 149 |
|---|---|---|
| Scoping | Centered on picking "significant components" | Risk-based: the auditor decides where and what work to perform based on assessed risks of material misstatement of the group financial statements |
| Component auditors | Treated as outside the engagement team | A component auditor is part of the engagement team, so the group engagement partner directs, supervises and reviews the work |
| Materiality | Component materiality set below group materiality | Component performance materiality set below group performance materiality, plus a threshold for communicating misstatements to the group auditor that does not exceed clearly trivial for the group statements |
| Aggregation risk | Not a defined term | Defined as the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole, and a driver of scoping and of component performance materiality |
| Communication | Required, less emphasized | Clear two-way communication between the group auditor and component auditors is emphasized |
| Reference to another auditor | Referred to a component auditor | Introduces the term referred-to auditor, who is not a component auditor and not part of the engagement team |
| Reporting options | Assume responsibility, or make reference | Both options are retained; the first is now described as involving component auditors in the group audit |
The standard connects with the other revised standards, particularly AU-C 315 as revised by SAS 145 and the quality management standards. The engagement partner's responsibility for direction, supervision and review sits within the quality management framework.
Key terms
- Group. A reporting entity for which group financial statements are prepared. Group financial statements include the financial information of more than one entity or business unit through a consolidation process, which covers consolidation, proportionate consolidation, the equity method, combined statements of entities under common control or management, and aggregation of branches or divisions.
- Component. An entity, business unit, function or business activity, or a combination, that the group auditor determines for purposes of planning and performing audit procedures in the group audit. Subsidiaries and equity-method investees are typical examples.
- Component auditor. An auditor who performs audit work on the financial information of a component for the group audit. Under SAS 149 this auditor is a member of the engagement team.
- Referred-to auditor. An auditor who audits the financial statements of a component, where the group engagement partner decides to make reference to that audit in the group auditor's report.
How does risk-based scoping work?
The auditor starts from the understanding of the group, its components and its environment required by AU-C 315, and from the assessed risks of material misstatement of the group financial statements. The auditor then determines the components at which audit work is to be performed and what work is needed so that the group engagement team can obtain sufficient appropriate evidence, and considers aggregation risk in doing so.
In practice, that means the team documents why each component is in or out of scope. A component is not out simply because it is small. If many small components together can still produce a material misstatement, the team needs a response, such as analytical procedures at the group level or work on a sample of components.
Where component auditors are involved, the group engagement team determines the nature, timing and extent of their involvement, directs their work through clear communication, and evaluates their findings. The group auditor remains responsible.
Component performance materiality
Group materiality and group performance materiality are set under AU-C 320. Where classes of transactions, account balances or disclosures are disaggregated across components, then for each component on which audit procedures are performed the auditor sets a component performance materiality lower than group performance materiality, and a threshold above which component misstatements are communicated to the group auditor, which should not exceed the amount clearly trivial to the group statements. The group auditor communicates both amounts to a component auditor. The aim is to reduce to an acceptably low level the probability that the aggregate of uncorrected and undetected misstatements exceeds group materiality. Where one component is audited for its own statutory purposes with its own materiality, the group team determines whether that materiality is suitable for the group work.
What about the consolidation process?
The auditor obtains an understanding of the consolidation process, including intercompany eliminations, and designs procedures on it. Consolidation adjustments, reclassifications and eliminations are a common source of misstatement, especially in entities with spreadsheet-based consolidations. Test the journals and the eliminations, and reconcile intercompany balances.
Reporting on a group audit
The group auditor chooses between two approaches for a component audited by another firm:
- Involve component auditors. This is the former assume-responsibility option. The component auditor is part of the engagement team, the group auditor directs, supervises and reviews the work and takes responsibility for it, and the report does not mention the component auditor.
- Make reference. The group engagement partner determines whether to refer to the audit of a referred-to auditor in the report. The standard sets conditions for making reference, including the group engagement partner's determination that the referred-to auditor has appropriate competence and capabilities and will comply with relevant ethical requirements, including independence.
When reference is made, the report makes clear that the referred-to auditor, not the group auditor, audited the component. The standard sets further reporting conditions.
The choice affects the group engagement partner's workload and risk and should be made early in planning. See AU-C 700 for report structure.
Practical steps before the first SAS 149 audit
These are practice suggestions, not requirements.
- List audit clients that have more than one entity in the financial statements, including equity-method investees and combined entities.
- For each, decide who the component auditors are, if any, including staff or offices of your own firm outside the engagement team.
- Update the engagement letter and planning memo templates for component performance materiality and the scoping rationale. See the audit planning memo template.
- Update instructions to component auditors and the form of their reports back.
- Include group considerations in the firm's quality management documentation.
What must be documented?
The file should show the understanding of the group and the consolidation process, the scoping decisions and rationale, component performance materiality, communications with component auditors and the group team's evaluation of their work, and the basis for the reporting approach. See AU-C 230 audit documentation.
Common weaknesses in group audit files
Practice checks, not requirements of SAS 149. Gaps to avoid:
- Scoping based on size alone, with no rationale for components left out
- Component materiality not set or not documented
- Instructions to component auditors not documented
- No evaluation of the component auditor's work or independence
- Consolidation eliminations not tested
Related
- AU-C 315 risk assessment and SAS 145
- AU-C 320 materiality
- AU-C 700 forming an opinion and reporting
- AU-C 230 audit documentation
- SQMS 1 quality management guide
- Audit planning memo template
Sources
- AICPA, AU-C Section 600, Special Considerations — Audits of Group Financial Statements (Including the Work of Component Auditors), as superseded by SAS No. 149 (periods ending on or after December 15, 2026)
- Journal of Accountancy, "SAS 149 is coming: what audit teams need to know" (August 2026)
- AICPA, AU-C Sections 315 and 320
Part of CORAA University · Specialized engagements: related guides, calculators and templates.
AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error