Thomas, CPA, has audited the consolidated financial statements of Kass Corporation. Jones, CPA, has audited the financial statements of its sole subsidiary, which is significant in relation to the total audited by Thomas. It would be appropriate for Thomas to serve as the group auditor, but it is impracticable for Thomas to review the work of Jones. Assuming an unmodified opinion is expressed by Jones, Thomas should
Express an unmodified opinion on the consolidated financial statements and refer to the work of Jones.
The group engagement team should obtain an understanding of the component auditor, a process that includes determining the extent, if any, to which the team will be able to be involved in the component auditor’s work. The group engagement partner then may decide to refer to the component auditor if (1) the component auditor meets relevant independence requirements for the group audit, (2) the group engagement team has no serious concerns about his/her professional competence or other ethical issues, (3) the component’s statements are prepared using the same reporting framework as that of the group statements (or responsibility is taken for adjustments to the group framework), (4) the component auditor’s report is not use-restricted, and (5) the component auditor has performed an audit in accordance with PCAOB standards (if required by law or regulation) or GAAS. If these requirements are met, the group engagement partner may decide (1) not to assume responsibility for the audit of the component auditor and (2) to refer to that audit. Moreover, the reference to the component auditor does not prohibit an unmodified opinion.