Final answer:
Focused substantive testing, not limited risk assessment, ignoring risks, or solely relying on management assertions, is the appropriate audit procedure for significant components in group financial statements to address risks of material misstatement.
Step-by-step explanation:
When an auditor encounters a component that is significant in nature within group financial statements, it often implies that there could be substantial risks of material misstatement. Therefore, audit procedures must be rigorous and meticulously planned. Contrary to option (a), a limited risk assessment would not suffice for such significant components. Option (c), which suggests ignoring risk factors, would also be inappropriate as it would leave potential misstatements unaddressed. Relying solely on management assertions, as indicated in option (d), could leave the auditor exposed to misinformation or biased reporting. The correct answer is (b), where focused substantive testing is required.
Focused substantive testing is a targeted form of audit procedure that concentrates on the identified risks that carry the most significant threat of material misstatement. This can involve a variety of audit techniques, such as inspection of relevant documents, confirmation with third parties, observation, and analytical procedures that correspond directly to the risks identified in the initial risk assessment phase. This approach, which emphasizes the auditor's understanding of the nature of the component and its environment, enhances the likelihood of detecting any material inaccuracies in the financial statements.
The overall objective of these audit procedures is to obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level. This involves an active and thorough engagement with the component's financial information and may require the work of component auditors who specialize in the specific area in question. Audit procedures for significant components are vital elements of the auditor's responsibility to provide an opinion on the fairness and accuracy of the group's financial statements as a whole.