Use Of Other Auditors/Reissue Reports Flashcards
Management and auditor’s will designate…
A principal auditor to sign the report
In large companies it is not uncommon for…
One firm to audit a parent and another firm to audit
subsidiary or part of anther company
The principal auditor is generally the auditor who…
Does the majority of the work
Principal auditor:
Majority of work, how is it measured?
Measured by percentage of total assets and revenues to
The consolidated total
The principal auditor must decide whether to…
Accept full responsibility or share responsibility with other auditor
If principal auditor decides to accept full responsibility…
There is no division of responsibility
Opinion is normal and there’s no mention of other auditor
If the principal auditor decides to divide the responsibility:
What 5 modifications are stated in the introductory paragraph? (Assume the principal auditor audited the parent)
1 we did not audit the subsidiary
2 the size of the sub
3 the statements were audited by other auditors
4 other auditors furnished us with their report
5 our report on sub is based on report of other auditor
If the principal auditor decides to divide the responsibility:
In the intro paragraph when stating the size of the sub, what is mentioned?
Present the percentage or total of assets and revenues to
consolidated total
If the principal auditor decides to divide the responsibility:
In the intro paragraph, When stating that the statements were not audited by other auditors…
Do not name the auditors due to confidentiality
If the principal auditor decides to divide the responsibility:
The scope paragraph is altered in…
The last sentence to indicate the report of the other auditor is used
If the principal auditor decides to divide the responsibility:
The opinion paragraph divides the responsibility by stating that…
The opinion is based on our audit and the report of the other auditor
If the principal auditor decides to divide the responsibility:
A qualification by either auditor on the individual company does not necessarily mean a qualification on the consolidation…
Materiality is the determining factor
Responsibilities of the principal auditor, 3 things they must do whether assuming responsibility or sharing responsibility
1 must verify professional reputation of other Auditor
2 must verify independence of other auditor in relation to the
Consolidation
3 must ascertain other auditor understands GAAP, SEC regulations,
SASs and other matters
Responsibility of the principal auditor:
The principal auditor may want to…
Review intercompany accounts
If the principal auditor is going to take all of the responsibility, the auditor must do the following 3 things as well…
1 review the audit programs used
2 review the evidence gathered by the other auditor
3 make some tests of the evidence gathered
Report sharing responsibility: intro paragraph alteration
Our responsibility is to express an opinion on the financial statements based on our audit…
What comes after this when the component auditor audited B Company, the wholly owned subsidiary?
We did not audit the financial statement of B Company, a
wholly-owned subsidiary,
Report sharing responsibility: intro paragraph alteration
We did not audit the financial statement of B Company, a wholly-owned subsidiary,…
(Assets = $700,000 and $650,000 20X2 and 20X1)
(Total Revenues = $250,000 and $200,000 20X2 and 20X1)
which statements reflect assets of $700,000 and $650,000 as
of December 31, 20X2 and 20X1 respectively, and total revenues
of $250,000 and $200,000 for the years then ended.
Report sharing responsibility: intro paragraph alteration
$250,000 and $200,000 for the years then ended. Those statements were…
Audited by other auditors whose report has been furnished to us
Report sharing responsibility: intro paragraph alteration
Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it related to the amounts included for B Company, is…
Based solely on the report of the other auditor
Report sharing responsibility: scope paragraph alteration
Normal scope paragraph except for the last line as follows
We believe that our audits and the reports of the other auditors
provide reasonable basis for our opinion
There has been a change in auditors. The old auditor is…
2) the new auditor is…
The predecessor
2) the successor
The successor may present the predecessor auditor’s report…
With permission only when there are comparative statements
The successor must make certain that the…
2) conditions could make it change (example)
Original report is still applicable
2) GAAP change
3 things predecessor auditor should do if successor auditor wants to review their report
1 auditor should read the current financial statements
2 make sure previous statements have not been changed
3 obtain letter of representation from successor auditor
What does the letter of representation from the successor auditor (obtained by the predecessor auditor) state?
Nothing has been found to indicate previous statements need
adjustment or have been adjusted
The successor auditor may simply decide to present the prior report or refer to the prior report…
In the current report
The prior report should be dated as of…
Why?
The original date since the report belongs to the predecessor
If the successor only refers to the report, the introductory paragraph should indicate 3 things
1 statements were audited by other auditors (no names)
2 date of previous report
3 type of opinion given and an explanation for any qualification
Ex. The financial statements for the year ended December 31, 20X1 were audited by other auditor whose report dated March 10, 20X2 was an unqualified report.
When the principal auditor assumes responsibility they must…
Go to component auditor’s location and review their work
Component auditor that audited the sub must be independent in relation to…
Parent
If mention component auditor by name, you need…2
1 their permission (confidentiality issue)
2 include their report alongside yours
Need permission from predecessor audit to…
Reissue their report
Predecessor auditor is responsible up…
Date they completed fieldwork in reissued statement
