William Halsey is auditing the consolidated financial statements of Rex, Inc. Abbey Lincoln is the auditor who has audited and reported on the financial statements of a wholly owned subsidiary of Rex, Inc. Halsey’s first concern with respect to the Rex financial statements is to decide whether he
Obtain an understanding of Lincoln’s professional competence.
May serve as the group auditor and report as such on the consolidated financial statements of Rex, Inc.
Should resign from the engagement because an unmodified opinion cannot be expressed on the consolidated financial statements.
May refer to the work of Lincoln in his report on the consolidated financial statements.
May serve as the group auditor and report as such on the consolidated financial statements of Rex, Inc.
The first objective of the group engagement partner is to determine whether to serve as the auditor of the group statements. If so, the objectives are to (1) determine whether to refer to the component auditor’s report, (2) communicate clearly with the component auditor or auditors, and (3) obtain sufficient appropriate evidence about the financial information of the components and the consolidation process. Thus, the group engagement partner should evaluate whether sufficient appropriate evidence can be obtained to serve as the auditor of the group statements. Factors relevant to the decision to act as the group auditor also include (1) the financial significance of individual components for which responsibility will be assumed, (2) the significant risks of material misstatement of the group statements from assuming responsibility for components, and (3) the group engagement team’s knowledge of the overall financial statements.
