Prior to the current year, CA had been the auditor of all the company's subsidiaries. However, during
Question:
Prior to the current year, CA had been the auditor of all the company's subsidiaries. However, during the current year, the company had acquired five new subsidiary companies whose accounts will be included in the consolidated financial statements of the company and will be audited by different chartered accountants. The board of directors had recommended that these auditors be retained for the current year and resolutions to this effect had been passed at the shareholder's meetings. CA has decided not to enter into an agency relationship with these auditors. Since the arrangements made for the audits of the new subsidiary companies may present some problems to CA in expressing an opinion on the consolidated financial statements of the company, the board has asked CA to explain the additional procedures necessary in order to rely on the work of the other auditors. The board also informed CA that the accounting practice followed by two of the newly acquired subsidiaries with respect to intangible assets and inventory valuation were not consistent with the practices of the parent company and its other subsidiaries. The parent company has instructed these two subsidiaries to change their accounting methods for these particular items to conform to the standard practices followed by the parent company and its other subsidiaries. The board asked CA to consider the implications of these changes and their possible effects on the financial statements and auditor's reports of both the new subsidiaries and the parent company. CA agreed to present at the next meeting comments on the points raised by the board. Indicate CA's response to the questions raised by the board of directors with respect to the audit of subsidiary companies, outlining:
1. The additional procedures which CA would consider necessary in order to rely on the work of the other auditors.
2. The implications of the changes in accounting practices and their possible effects on the financial statements and auditors' reports of both the new subsidiaries and the parent company.
Step by Step Answer:
Auditing Concepts And Methods A Guide To Current Auditing Theory And Practice
ISBN: 9780070099999
5th Edition
Authors: Mcgraw-Hill