Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

When must a group engagement partner assess a component auditor's work?

1. When financial statements are material to the consolidated totals.

2. Only if the group has a history with the component auditor.

3. If the group engagement partner decides to divide responsibility.

4. When planning the audit.

The correct answer is: When financial statements are material to the consolidated totals.

A group engagement partner must assess a component auditor's work when the financial statements are material to the consolidated totals. This situation arises due to the need for the group engagement partner to understand the potential impact that the component auditor's work may have on the overall financial statements of the entity. When a component's financial statements contribute significantly to the total balance of the consolidated financials, ensuring the integrity and reliability of that component's audit work is critical. In this context, the assessment involves evaluating whether the component auditor’s work is sufficient and appropriate for reliance, which ensures the group audit opinion is based on solid evidence. This is rooted in the principles of sufficient and appropriate audit evidence as well as the inherent risks involved in the audit of distributed and often complex group entities. The group engagement partner must ensure that any significant risks or concerns identified by the component auditor are adequately addressed, safeguarding the accuracy of the consolidated financial statements. Although factors such as history with the component auditor, shared responsibilities, or the timing of the audit planning have roles in the audit process, they do not trigger the necessity of assessing the component auditor’s work as directly as the materiality of the financial statements does.