Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

If a group auditor decides not to refer to a component auditor, what is the most likely action?

1. Determine the type of work needed on the component's financial information.

2. Add an emphasis-of-matter paragraph about the subsidiary's financial statements.

3. Obtain written permission from the component auditor to omit the reference.

4. Document in the engagement letter that responsibility for the component's work is assumed.

The correct answer is: Determine the type of work needed on the component's financial information.

The most appropriate action for a group auditor who decides not to refer to a component auditor is to determine the type of work needed on the component's financial information. This is essential because the group auditor must assess how much reliance can be placed on the component auditor's work or whether additional procedures are needed to evaluate the financial information of that component adequately. By determining the type of work needed, the group auditor can ensure that the overall audit objectives are met and that there is adequate evidence to support the audit opinion on the consolidated financial statements. This approach aligns with the responsibilities outlined in auditing standards, where the group auditor remains responsible for the audit opinion on the consolidated financial statements, even when parts of that opinion rely on the work performed by component auditors. The other options are less relevant in this context. For instance, adding an emphasis-of-matter paragraph is not typically necessary unless specific circumstances warrant it, such as the need to draw attention to a particular aspect of the financial statements. Obtaining written permission from the component auditor to omit the reference may not be required, as the component auditor's work can simply be assessed independently by the group auditor. Additionally, documenting in the engagement letter that responsibility for the component's work is assumed may not directly relate to the decision