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Becker MCQ again. Very confusing.
My thoughts: Becker is selecting c as the correct answer. This doesn’t sound right to me. From my understanding, the group auditor must at least review the component auditor’s work or at least do something in order not to make reference to the component auditor and assume the responsibility on component auditor’s work.
Choice c here is saying the group auditor is assuming the responsibility solely because they trust the component auditor’s work without even looking at it at all? Can they really do that? Taking the responsibility without even reviewing the work?Also in general, if the group engagement auditor doesn’t want to make reference to the component auditor’s work, what do they have to do first? Becker book only mentions what they need to do if they want to make reference.
Thanks for the help.
Question:
In the auditor’s report under U.S. GAAS, the group engagement partner decides not to make reference to another CPA who audited a client’s subsidiary. The group engagement partner could justify this decision if, among other requirements, the group engagement partner:a.Learns that the component auditor issued an unmodified opinion on the subsidiary’s financial statements.
b.Issues an unmodified opinion on the consolidated financial statements.
c.Is satisfied as to the independence and professional reputation of the component auditor.
d.Is unable to review the audit programs and audit documentation of the component auditor.Becker Explanation
Choice “c” is correct. Under U.S. GAAS, if, among other requirements, the group engagement partner is satisfied as to the independence and the professional reputation of the component auditor, the group engagement partner may express an opinion on the financial statements taken as a whole without making reference to the audit of the component auditor.
Choice “b” is incorrect. Whether or not an unmodified opinion is issued is not the determining factor as to whether the group engagement partner must make reference to the component auditor.
Choice “a” is incorrect. Whether or not an unmodified opinion is issued on the subsidiary’s financial statements is not the determining factor as to whether the group engagement partner must make reference to a component auditor.
Choice “d” is incorrect. If the group engagement partner is unable to review the audit programs and audit documentation of the component auditor, he or she is likely to divide responsibility by making reference to the component auditor in the auditor’s report.
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