[Boate]

I don’t understand the reasoning behind the answer to this question. Could some explain please?

Under U.S. GAAS, in which of the following situations would a group engagement partner least likely make reference to component auditor who audited a subsidiary of the entity?

a. The group engagement partner is unable to be satisfied as to the independence and professional reputation of the component auditor.

b. The component auditor was retained by the group engagement partner and the work was performed under the group engagement partner’s guidance and control.

c. The group engagement partner finds it impractical to review the component auditor’s work or otherwise be satisfied as to the component auditor’s work.

d. The financial statements audited by the component auditor are material to the consolidated financial statements covered by the group engagement partner’s opinion.

The correct answer is D but I chose answer A because if the auditor cannot become satisfied as to the independence of the component auditor, wouldn’t he/she then audit the subsidiary themselves? Wouldn’t they complete the necessary procedures to give an opinion? If the group engagement partner is not satisfied to the independence of the component auditor, why would he/she even consider mentioning them? I understand why D is also a good answer choice, I just figured if independence was impaired, the component auditor wouldn’t be able to give an opinion on the F/S so why would the group engagement partner consider the work of the component auditor?

AUD: (65)(66) 77
REG: (66) (48) destroyed me mentally.....
FAR: (68) (66)(69)(71)
BEC: (63) 75

"Greatness is not some precious thing, it is no more unique to us than breathing. We are ALL capable of it."

[Anonymous]

If the group engagement partner is satisfied as to the professional competency of the component auditor's work, then the group engagement partner should not make reference to the component auditor in the audit report.

Answer's A, B, and C, all indicate situations where the group engagement partner would likely not rely on the work of the component auditor, therefore; in those situations, the group engagement partner would make reference to the component auditor in the audit report.

Answer D is the only answer that does not indicate a weakness in the group engagement partners' reliance on the component auditors work.

Answer B could also “possibly” be correct, however; we must always choose the BEST answer.

Just remember:

Group engagement partner can rely on the component auditor's work = Do not mention the component auditor in the audit report

Group engagement partner is not confident about the component auditors work = Mention the component auditor in the audit report in order to indicate a division of responsibility (liability)

Hope this helps….

[CPA soon]

I would have went with B but as Charlie indicated audit reference is only made for division of responsibility

FAR - 71, 68, 74, (8/31/14) 78 ✔
REG - 67, 71, 71, (10/18/14) 78 ✔
BEC - (11/29/14) 86 ✔
AUD - 73, (4/4/15) 86 ✔

I can't believe this is over! 2 years and 3 months..

[Author]

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