Your firm of accountants is the auditor of Oxford Ltd., a reporting entity. Oxford’s consolidated financial statements incorporate the financial statements of its four subsidiaries. Three subsidiaries are incorporated in Canada and audited by your firm. The fourth subsidiary is located in another country and audited by another firm of professional accountants.

Required

a. Explain how you would verify the intercompany balances.

b. Describe other audit adjustments you would expect to find and explain how you would verify each of them:

i. where the subsidiary had been acquired before the financial year under audit.

ii. where the subsidiary had been acquired during the financial year under audit.

iii. Describe the procedures necessary to determine the level of reliance to be placed on the audited financial statements of the foreign subsidiary.