Morgan,CPA,is the group auditor for a multinational corporation.Another CPA has examined and reported on the financial statements of a significant subsidiary of the corporation.Morgan is satisfied with the independence and professional reputation of the component auditor,as well as the quality of the component auditor's audit.With respect to Morgan's report on the consolidated financial statements,taken as a whole,Morgan:
A)Must not refer to the audit of the component auditor.
B)Must refer to the audit of the component auditor.
C)May refer to the audit of the component auditor.
D)May refer to the audit of the component auditor,in which case Morgan must include in the audit report on the consolidated financial statements a qualified opinion with respect to the audit of the component auditor.

Question

Quizplus · Accepted Answer

According to the International Standards on Auditing, if the group auditor (in this case, Morgan) is satisfied with the independence and professional reputation of the component auditor, as well as the quality of the component auditor's audit, then the group auditor may refer to the audit of the component auditor in their report on the consolidated financial statements. However, the group auditor must explicitly state in their report that they have relied on the work of the component auditor and that they have not audited the subsidiary's financial statements. There is no requirement for a qualified opinion in this situation. Therefore, the best choice is C.

Morgan,CPA,is the Group Auditor for a Multinational Corporation