You are in charge of the audit of the financial statements of Parat, Inc. and consolidated subsidiaries covering the two years ended December 31, 2012. Another public accounting firm is auditing Nuam, Inc., a major subsidiary that accounts for total assets, revenue, and net income of 30%, 26%, and 39%, respectively, for 2011; and 28%, 20%, and 33% for 2012.
Required
a. What is meant by the term principal auditor?
b. What factors should be considered when determining which public accounting firm should serve as the principal auditor?
c. Under what circumstances might the principal auditor decide not to refer to the other audit firm in the audit report on the consolidated statements?
d. If the principal auditor does not refer to the other auditor in the audit report, who is ultimately responsible to third parties if the other auditor was fraudulent or grossly negligent?
e. Write the audit report referring to the other audit firm and expressing an unqualified opinion.