Group audits: two choices
| Decision | Consequence |
|---|---|
| Assume responsibility for the component auditor's work | No reference to the component auditor in the report — the group auditor's opinion covers everything |
| Make reference to the component auditor | The report indicates the division of responsibility and the magnitude of the portion audited by others; the opinion is still unmodified |
IMPORTANT: Making reference to a component auditor is not a qualification and is not a scope limitation. It is a division of responsibility, permitted only when the component auditor's work meets specific conditions (e.g., the component's statements are prepared under the same framework and the component auditor followed relevant standards and is independent).
Using the work of internal audit
Two distinct uses:
- Using internal audit's work as audit evidence — the external auditor evaluates internal audit's objectivity, competence, and systematic/disciplined approach, then evaluates and tests some of the work.
- Direct assistance — internal auditors work under the external auditor's direction. Not permitted for areas involving significant judgment or high risk of material misstatement, and prohibited entirely for issuers under PCAOB rules.
EXAM TIP: Regardless of how much internal audit work is used, the external auditor's sole responsibility for the opinion is not reduced, and the report makes no reference to internal audit.
Auditor's specialist vs. management's specialist
- Auditor's specialist — engaged by the auditor (e.g., a valuation expert). Evaluate competence, capabilities, objectivity; agree on scope; evaluate the findings. No reference in an unmodified opinion; reference is permitted only if the specialist's work causes a modification, and then only with the specialist's permission.
- Management's specialist — engaged by the client. Evaluate the specialist's competence and objectivity, understand the work, and evaluate whether it provides appropriate audit evidence.