Page 167 - Auditing Standards

As of December 15, 2017
company's consolidated financial statements.

.B11 In assessing and responding to risk, the auditor should test controls over specific risks that present a

reasonable possibility of material misstatement to the company's consolidated financial statements. In lower-
risk locations or business units, the auditor first might evaluate whether testing entity-level controls, including

controls in place to provide assurance that appropriate controls exist throughout the organization, provides
the auditor with sufficient evidence.

.B12 In determining the locations or business units at which to perform tests of controls, the auditor may

take into account work performed by others on behalf of management. For example, if the internal auditors'
planned procedures include relevant audit work at various locations, the auditor may coordinate work with the
internal auditors and reduce the number of locations or business units at which the auditor would otherwise

need to perform auditing procedures.

.B13 The direction in paragraph .61 regarding special considerations for subsequent years' audits means
that the auditor should vary the nature, timing, and extent of testing of controls at locations or business units

from year to year.

.B14 Special Situations. The scope of the audit should include entities that are acquired on or before the

date of management's assessment and operations that are accounted for as discontinued operations on the
date of management's assessment. The direction in this multiple-locations discussion describes how to
determine whether it is necessary to test controls at these entities or operations.

.B15 For equity method investments, the scope of the audit should include controls over the reporting in
accordance with generally accepted accounting principles, in the company's financial statements, of the

company's portion of the investees' income or loss, the investment balance, adjustments to the income or
loss and investment balance, and related disclosures. The audit ordinarily would not extend to controls at the
equity method investee.

.B16 In situations in which the SEC allows management to limit its assessment of internal control over
financial reporting by excluding certain entities, the auditor may limit the audit in the same manner. In these
situations, the auditor's opinion would not be affected by a scope limitation. However, the auditor should

include, either in an additional explanatory paragraph or as part of the Basis for Opinion section in his or her
report, a disclosure similar to management's regarding the exclusion of an entity from the scope of both
management's assessment and the auditor's audit of internal control over financial reporting. Additionally, the
auditor should evaluate the reasonableness of management's conclusion that the situation meets the criteria

of the SEC's allowed exclusion and the appropriateness of any required disclosure related to such a limitation.

164