If too many cooks spoil the pot, what do a bunch of auditors from various firms do to an engagement?Don't answer that.

Just read the proposed standard on group audits that the International Auditing and Assurance Standards Board has issued. Then you'll know what a bunch of auditors are supposed to do - at least in countries that accept IAASB standards.

Group audit situations have become increasingly common as companies grow beyond borders. When a company gets large or far-flung enough, an audit engagement may well come to involve more than one office of a given firm, or even more than one firm - and then things really get complicated. Who's in charge? Who's responsible for what? How do various audits become one audit?

One of the most controversial issues that the IAASB discussed was whether to eliminate the distinction between sole and divided responsibility. The distinction exists under the current international standard, and it has long been the generally accepted auditing principle in the United States.

The board has decided, however, that a single group auditor must be responsible for expressing an audit opinion on group financial statements, and that group auditor must determine the audit procedures for the consolidation and the work to be performed on the components' financial information, both by the group auditor and by other auditors.

"The old standard acknowledged divided responsibility, but it didn't deal with it in much depth," said IAASB chairman John Kellas. "When we revised the standard, we said we would deal primarily with sole responsibility, but acknowledge divided responsibility... . But trying to deal with both was not satisfactory, so we took the decision that we would do a standard that was able to drive the work of an auditor who was taking sole responsibility."

The division of responsibility is most commonly used when an investment is accounted for under the equity method and the investee is audited by a firm other than that of the investor.

John A. Fogarty, chair of the U.S.-based Auditing Standards Board and a Deloitte & Touche partner and director of assurance policies and methodologies, praised the standard, saying that it is "a good standard and will improve practice around the world," but expressing reservations about the decision on divided responsibility.

"[Divided responsibility] is a very useful practice when the principle auditor does not have access to the other auditor or the management of the investee," Fogarty said. "It also is informative to the reader of the report, since it makes clear that the audit was conducted by more than one firm and that the principle auditor did not perform all of the audit. In such situations, if division of responsibility were not available, the only recourse the auditor would have is to qualify the report on the basis of a scope limitation."

Though the ASB is pursuing, in principle, convergence with international auditing standards, he sees little chance of it shifting to a standard prohibiting the division of responsibility. At most, he said, the board might try to converge with all other parts of the new standard, though it has no such project on its current agenda. The Government Accountability Office also opposes exclusive sole responsibility, because it would make an audit of the federal government impossible.

An important part of the new proposal is its position on the involvement of the group auditor in the work of others. The board saw potential difficulties in situations where the group auditor could exert influence, but not control, over associated auditors.

The proposal eliminates any distinction between related and unrelated auditors, which under current standards are treated differently by the group auditor. The proposal also eliminates the notion that the group auditor can delegate his responsibilities to a related auditor, with the group auditor performing very limited or no procedures in relation to the work performed by the related auditor.

Kellas said that the standard is similar to generally accepted auditing principles in the United Kingdom, but would conflict with American GAAP, which is one of few systems that recognizes divided responsibility.

Comments on the exposure draft are requested by July 31, 2006. The IAASB has not yet determined an effective date for the proposed standard.

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