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External audit for company with more than one entity

What are the audit standards in regards to auditing a company that has both an operations entity and an investment entity. Do both entities need to be audited or do standards specify that only the larger entity (in this case operations) needs to be audited? Thanks for your help!

Answers

Stephen Turk
Title: Principal
Company: Stephen Turk, CPA
(Principal, Stephen Turk, CPA) |

More information about the ownership and corporate structure is needed to give a definitive answer. However, if the financial statements are going to be presented on a consolidated or combined basis, the audit will cover both entities. That is, the audit is an audit of the financial statements as presented, not of one entity or another.

Topic Expert
Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

More often than not you will audit both. Consolidated financial reporting will certinaly require both, and the size or impact of the investment company on the larger company may also require that. The nature of the relationship is also a factor. If the entity is private, auditing both may be needed to ensure a full understanding of operations in the operating company.

Marcus Jones, CPA, CMA
Title: Audit & Advisory Senior
Company: Marino CPA Firm
(Audit & Advisory Senior, Marino CPA Firm) |

Barrett and Stephen thanks for your responses. You are correct in that I needed to provide more info on the structure. I found out that both entities are 100% owned by the same owner which I believe would fall under the consolidation rules and therefore both entities would be audited as you mentioned. Thank you both very much!

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