The Audit Quality Review (AQR) team’s annual report on its 2012/13 inspections highlights some concerns relating to the audit of what it has called ‘letterbox’ companies.
AQR’s concerns relate to the audit of companies or groups that have little more than a registered office or correspondence address in their country of registration, with general, financial and corporate management and all economic activity being located elsewhere. In such situations, the company or group auditor is usually based in the country of legal registration of the company, rather than where management is based, and the majority of the work is often performed by component auditors. AQR has identified a number of cases where the auditor who signs the company or the group audit report is conducting the audit without sufficient involvement.
Andrew Jones, head of AQR, has written a letter to the audit firms for which AQR has primary inspection responsibility to draw attention to this topic, and to set out the relevant parts of the auditing standards and how they apply to letterbox companies. This is a helpful summary of the relevant considerations and we strongly recommend that you refer to it if your firm has any audits of this nature, whether or not they are within AQR scope.