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

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Where should a group engagement partner state they did not audit the financial statements of a component?

In the Auditor's Responsibility paragraph.
In an emphasis-of-matter paragraph preceding the Auditor's Responsibility paragraph.
In a separate report prepared by the component auditor.
In the Management's Responsibility paragraph.

The correct answer is: In the Auditor's Responsibility paragraph.

The group engagement partner should state they did not audit the financial statements of a component in the Auditor's Responsibility paragraph. This is consistent with auditing standards, which require transparency regarding the scope of the auditor's work. By including this information in the Auditor's Responsibility paragraph, it clearly communicates to users of the financial statements the extent of the engagement partner's accountability and the limits of their audit work concerning that component. This location for the statement emphasizes the responsibilities of the auditor related to the overall financial statements while still acknowledging that certain parts were not audited directly by them. This helps set the context for the users about the reliability of the financial information being presented and avoids any potential misunderstanding regarding the completeness of the audit. In comparison, placing such a statement in an emphasis-of-matter paragraph would not be ideal since emphasis-of-matter paragraphs are typically used to highlight a specific issue that is fundamental to the user’s understanding of the financial statements rather than clarifying the audit scope. Similarly, a separate report by the component auditor would not provide the appropriate context within the consolidated audit report, and mentioning it in the Management's Responsibility paragraph would not align with the role of management in the financial reporting process, which focuses on their accountability for the preparation of the financial statements.