Use of report of another auditor

Question 1

How many audit reports should be included when Auditor A has audited the parent company and several subsidiaries and Auditor Z has audited another one of the subsidiaries?

Answer 1

One report signed by the auditor designated as the principal auditor in this instance Auditor A

Question 2

What are two actions a principal auditor can take in regard to another auditors work?

Answer 2

May or may not Divide responsibilities between auditors

Dividing -normally includes disclosing another auditor involved and the percentage of total assets and/or revenues audited by other auditor

Question 3

An auditor decides not to divide responsibilities with another auditor. How is the audit report issued by the principal auditor?

Answer 3

the report would make no mention of the other auditor since he has taken responsibility for the other auditors work

Question 4

Another auditor gives a qualified opinion on the F/S of a subsidiary. How does this qualification affect the report of the principal auditor on the consolidated F/S?

Answer 4

The principal auditor must evaluate the misstatement that caused the qualification in relation to the consolidated F/S as a whole. A misstatement that is material to a subsidiary may or may not be material to the consolidated F/S.

Question 5

What actions must a principal auditor with regard to the work of another auditor when responsibility is divided?

Answer 5

Verify professional reputation and competency of the other auditor

Verify independence of other auditor

Question 6

What actions must a principal auditor with regard to the work of another auditor when responsibility is not divided?

Answer 6

1. ascertain that the other auditor has satisfactory knowledge of GAAP, GAAS, tax laws, and other applicable guidelines
2. manage and review intercompany balances
3. Review other auditors audit plan and procedures
4. Review evidence gathered by other auditor
5. test some of other auditors work if appropriate

Question 7

How does dividing responsibility affect the audit report issued by the principal auditor?

Answer 7

Intro paragraph - indicates another auditor performed part of the work, the amount is quantified in dollar amount or percentage, indicates the overall audit opinion is based on the report of the other auditor

Scope paragraph - indicates that the audit and the report of another auditor provide a reasonable basis for the opinion

Opinion paragraph - indicates that the opinion is based on the audit and report of another auditor

The name of the other auditor is rarely provided and would never be given without permission of the other auditor.

Question 8

What course of action must a principal auditor take when dividing responsibility?

Answer 8

Verify professional reputation and competency of the other auditor

Verify independence of other auditor

1. ascertain that the other auditor has satisfactory knowledge of GAAP, GAAS, tax laws, and other applicable guidelines
2. manage and review intercompany balances, especially those at year end