The Auditor's Responsibility paragraph of an auditor's report contains the following sentences:
We did not audit the financial statements of EZ Inc., a wholly-owned subsidiary, which statements reflect total assets and revenues constituting 27 percent and 29 percent, respectively, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for EZ Inc., is based solely on the report of the other auditors.
These sentences:
a. Assume responsibility for the other auditor.
b. Indicate a division of responsibility.
c. Require a departure from an unqualified opinion.
d. Are an improper form of reporting.
Answer:B
Choice "b" is correct. The paragraph presented is the proper form of disclosure when another auditor performs a substantial portion of the audit. When the group engagement partner makes reference to the audit of another auditor (component auditor), the report should indicate clearly the division of responsibility between the portion of the financial statements covered by each audit.
Choice "a" is incorrect. By making the disclosure that another auditor (component auditor) performed part of the audit, the group engagement partner explicitly does not assume responsibility for the component auditor's work. If the disclosure is omitted, then the group engagement partner implicitly does assume responsibility for the component auditor's work.
Choice "c" is incorrect. Reference in the report of the engagement team partner to the fact that part of the audit was performed by another auditor (the component auditor) is not a qualification of the opinion. It is simply an indication of the divided responsibility between the auditors who conducted the audits of various components of the overall financial statements.
Choice "d" is incorrect. The paragraph presented is the proper form of disclosure when a component auditor performs a substantial portion of the audit.