Question

Indicate the type of report for Barefield Corporation, a wholly owned subsidiary of Sandy, Inc., which is audited by another CPA firm. As the auditor is Sandy, Inc., you have assured yourself of the other CPA firm's independence and professional reputation. However, you are unwilling to take complete responsibility for its audit work. What type of report is this?

1) Unqualified opinion
2) Qualified opinion
3) Adverse opinion
4) Disclaimer of opinion

Answer 1

A disclaimer of opinion is the appropriate type of report when an auditor is unwilling to take complete responsibility for another CPA firm's audit work, despite recognizing their independence and professional reputation.

Step-by-step explanation:

When an auditor has reviewed the financial statements of a wholly owned subsidiary, which has been audited by a different CPA firm, and the auditor is not willing to take complete responsibility for the subsidiary's audit, the auditor may issue a disclaimer of opinion.

A disclaimer of opinion is issued when the auditor cannot obtain sufficient appropriate audit evidence on which to base the audit opinion and concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive. In the case of Barefield Corporation, a wholly owned subsidiary of Sandy, Inc., audited by another CPA firm, if the auditing CPA of Sandy, Inc. has confirmed the other CPA firm's independence and professional reputation but is unwilling to assume full responsibility for their audit work, a disclaimer of opinion would likely be the appropriate type of report.