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

What does a reference in a group engagement partner's report to another auditor indicate?

1. Expertise of the component auditor.

2. Divergent opinions on the components.

3. Divided responsibility between auditors.

4. Lack of materiality of the component's audit.

The correct answer is: Divided responsibility between auditors.

A reference in a group engagement partner's report to another auditor indicates divided responsibility between auditors. This situation arises when the group auditor relies on the work of another auditor who has conducted the audit or review of a component of the group’s financial statements. By mentioning the component auditor in the report, the group engagement partner acknowledges that the responsibility for the audit of that specific component is shared. This division of responsibility is crucial because it clarifies to users of the financial statements that the group auditor has not solely conducted the audit for the entire consolidated entity but has incorporated the work and findings of the component auditor. This aspect of shared responsibilities is particularly important in the context of large organizations or groups that may have multiple components audited by different firms or teams. In contrast, the other options do not accurately capture the essence of what such a reference signifies. It does not imply that the component auditor possesses special expertise or that there are divergent opinions about the components. Additionally, mentioning another auditor does not relate to the materiality of the component's audit; even immaterial components may have their audits referenced if their findings contribute to the overall audit opinion.