Reports Involving Other Auditors. Pomposo Coporacin of Mexico City, Mexico, an audit client of yours, is a

Reports Involving Other Auditors. Pomposo Coporacién of Mexico City, Mexico, an audit client of yours, is a manufacturer of consumer products and has several wholly owned subsidiaries in foreign countries which are audited by other independent auditors, certified in those countries. The financial statements of all subsidiaries were properly consolidated in the financial statements of the parent company and the foreign auditors’ reports were furnished to your professional auditing firm.

You are now preparing your auditor's opinion on the consolidated balance sheet and statement of income and retained earnings for the year ended 30 June 20X4. These statements were prepared on a comparative basis with those of last year.

Required

A. How would you evaluate and accept the independence and professional reputations of the foreign auditors?

B. Under what circumstances may a principal auditor assume responsibility for the work of another auditor to the same extent as if the principal auditor had performed the work?

C. Assume that both last year and this year you were willing to utilize the reports of the other independent auditors in expressing your opinion on the consolidated financial statements but were unwilling to take full responsibility for performance of the work underlying their opinions. Assuming your examination of the parent company’s financial statements would allow you to render an unqualified opinion, prepare:

(a) the necessary disclosure to be contained in the scope paragraph and

(b) the complete opinion paragraph of your auditor’s report.

D. What modification(s), if any, would be necessary in your auditor's opinion if the financial statements for the prior year were unaudited?