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

In a case where an auditor is engaged by one corporation to audit another, to whom would the auditor's report typically be addressed?

1. The entity audited by the auditor.

2. The client that engaged the auditor.

3. Both the client and third-party entities.

4. The financial institution involved in transactions.

The correct answer is: The client that engaged the auditor.

The auditor's report is typically addressed to the client that engaged the auditor, which in this case is the corporation that contracted the auditor to perform the audit of another entity. This means that the primary responsibility for the audit lies with the auditor's client, who requested the audit and will receive the report for their review, decision-making, and further actions. When an auditor performs an audit of a different entity, the findings, conclusions, and opinions expressed in the report are primarily intended for the client who commissioned the audit. This report serves as a formal communication of the audit's results, designed to meet the needs and expectations of that client, who relies on this information to understand the financial health and practices of the audited entity. While the auditor may consider the interests of third parties who might be interested in the audited financial statements, the report remains formally addressed to the client. It's essential to recognize that the audit process serves the client’s objectives, which could include informing stakeholders about the financial condition of the entity they engaged to audit. In summary, the auditor's report is typically addressed to the client that engaged the auditor, as it reflects the auditor's responsibility to that client and their specific needs in relation to the audited entity.