The Group Auditors Decide Not to Refer to the Audit

question 28

Multiple Choice

The group auditors decide not to refer to the audit of component auditors who audited a subsidiary of the group financial statements. After making inquiries about the component auditors' professional reputation and independence, the group auditor most likely would

• A)document in the engagement letter that the group auditors assume no responsibility for the component auditors' work.
• B)obtain written permission from the component auditors to omit the reference in the group auditors' report.
• C)contact the component auditors' and review the audit programs and working papers pertaining to the subsidiary.
• D)add an explanatory paragraph to the group auditors' report indicating that the subsidiary's financial statements are not material to the consolidated financial statements.

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Definitions:

Unit-level Activity

Activities that vary directly with the number of units produced or services rendered, such as using materials or consuming power.

First-stage Allocation

The process in managerial accounting where overhead costs are allocated to various departments or cost centers as a preliminary step.

Special Cost Pool

A financial management term for aggregating specific costs together, typically for reporting or reimbursement purposes.

ABC System

An approach in accounting that allocates overhead and indirect costs to specific activities related to the production of a product or service.