I am starting in audit soon and I am just wondering the mechanics of an audit in regards to a parent and sub. if a company buys another and they have different auditors, would the auditor of the parent normally take control of the audit of the sub also or would they keep the two auditor system? I was just thinking because maybe the sub feels like they have a better working relationship with the current auditor and they wouldn't want to switch. Next, in regards to a compliance with the sec, if the parent is public does the subsidiary automatically have to start complying with sox and all the sec rules for public companies in their audits? And lastly, if a public company parent has a bunch of diversified stuff with subs with HQ's in different places, do the subs do their own sec audits and then report everything to parent who puts everything together and does final reporting? Or does the parent do everything from their HQ?
How do parent and subsidiary audits work?
Answers
Good questions for somebody who is about to start a job in auditing. Based on your questions, the company you will be working for is handling audit assignments of major public companies. All falling under GAAP and SEC rules and regulations.
Reporting under SEC rules and "calling for public money" by offering its shares on one of the Stock Exchanges in the USA requires, that each company's financial statements are based on exactly the same rules and regulations in order to guarantee, that its shareholders are able to compare the financial data provided by these companies. Otherwise, the interpretation and the comparison of financial data, analysis, and ratios would become meaningless and the trust in the reliability of performance and valuation of the assets of public companies would be lost.
The question is therefore never about the sub's feeling about their working relationship with their auditor, or the preference of using a particular methods instead of others. Uniformity, use of identical systems and procedures through out the organization is an absolute must.
Since those, who carry the responsibility also must have the authority to implement their decision, the question about who is selected as auditor of any of the companies must be worked out in collaboration with the auditor who carries the ultimate responsibility to sign off on the audit of the consolidated accounts. Same applies to a company's decision how to organize its work flow and its reporting structures. It is up to the Board of Directors and the Executives of a corporation to decide, whether work is handled independently by the various field organizations or whether some of the tasks are centralized at Regional-, Divisional-, or Geographical Offices and submitted as sub-consolidated results to the Mother Company.