Scoping and materiality on group audits
Scoping is probably the single most critical element of a group audit. If group auditors get this wrong, there will be little they can do to salvage the audit because they will either be doing too much and inefficiently, or too little and non-compliant.
Scoping out components that should be scoped in, and performing too little work on components because they are not assessed as significant, is by far the greater and more serious risk. But scoping requires more than a little judgement and it is just as possible to err too far in the other direction. Inefficient and unprofitable audits matter because they are unsustainable.
In recent years, regulators across the world have publicly criticised the conduct of group audits. They claim that firms, under significant pressure to reduce fees, have changed the scoping of group audits by raising materiality levels without adequate justification.