CHAPTER 26

USING THE WORK OF OTHERS

I. Review Questions
1. An auditor who reports on the financial statements of a combined entity when he
or she audited the major part of the combined entity is the principal auditor.
Auditing standards identify procedures to be followed by a principal auditor.

To be able to serve as auditor of a combined entity, an auditor must determine

that he or she is able to be the principal auditor based on the materiality of the
portion of the financial statements that he or she has examined, his or her
knowledge of the overall financial statements, and the importance of the
components he or she has audited.
2. The principal auditors must perform one or more of the following procedures:
• Visit the auditor.
• Review the audit programs.
• Review audit work papers.
• Perform additional audit procedures.
3. Refer to page 879.
4. Refer to pages 879 to 880.

5. While the external auditor has sole responsibility for the audit opinion expressed
and for determining the nature, timing, and extent of external audit procedures,
certain parts of internal auditing work may be useful to the external auditor.
The external auditor should obtain a sufficient understanding of internal audit
activities to assist in planning the audit and developing an effective audit
approach.

Effective internal auditing will often allow a modification in the nature and
timing, and a reduction in the extent of procedures performed by the external
auditor but cannot eliminate them entirely. In some cases, however, having
considered the activities of internal auditing, the external auditor may decide
that internal auditing will have no effect on external audit procedures.

The external auditor’s preliminary assessment of the internal audit function will
influence the external auditor’s judgment about the use which may be made of
26-2 Solutions Manual - Principles of Auditing and Other Assurance
Services
internal auditing in modifying the nature, timing and extent of external audit
procedures.

II. Multiple Choice Questions

1. c 3. d 5. b
2. b 4. b 6. c

III. Comprehensive Cases

a. Tan should ask San Nicolas to authorize Andres to respond fully to her inquiries.
If San Nicolas refuses or limits the responses, Tan should request San Nicolas to
explain the reasons. After obtaining the explanation, Tan should consider
whether to continue pursuing the engagement.
b. Tan will have to (1) obtain additional information about the client and possibly
about the industry, which Andres would have obtained in prior years, (2) make a
more detailed evaluation of whether to accept this client, (3) obtain information
about the client’s internal control, which Andres would have obtained in prior
years, and (4) obtain evidence about beginning balance sheet balances, which
Andres would have obtained in prior years.