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Hello Mike,
The scenario is about an audit client Crow, whose payroll fuction being outsourced and which is also material. A new audit junior asks how does the outsourcing function of payroll affect our audit planning?
I have a query regarding the examine’s comments, the examiner said “Disappointingly, few answers mentioned type 1 and type 2 report that are typically obtained in this situation, and many tried to focus on ethical matters such as independence, and therefore didn’t specifically address the requirement”.
My understanding is that when we consider the implication of outsourced function on audit, we also need to determine the relationship between the audited entity and the service organization, and to evaluate whether the service organization is independent to the audited entity.
My question is why an answer mentioned about independence does not address the question requirement.
Thank you.
Regards,
MarthewThe final three lines of the ACCA suggested solution states:
“The purpose of obtaining the understanding above is to help the auditor to determine the level of competence of the service organisation, and whether it is independent of the audited entity. This will then impact on the risk of material misstatement assessed for the outsourced function.”
There is a whole lot of mark grabbing in the “above” but within that preceding answer there is only 3 lines that mention / refer to type 1 and type 2 reports so it’s not as though the entire answer was based on those reports
The question specifically asks “How does the outsourcing of payroll affect our audit planning?” and I’m thinking that outsourcing affects planning because we need, as a primary concern, to assure ourselves that the service provider is independent of the client
OK, I agree with you on this
However, having confirmed independence, how else does the use of an out-source provider affect the audit of our client? And now you need to get into visiting the service provider’s premises, determining their systems and protocols, maybe using the provider’s own auditors to provide us with answers to our questions, obtaining client permission to approach the provider direct, ……
It’s a 4 mark question and independence could only be worth 1 of those 4 marks How else is our planning affected … that’s worth 3 more marks
OK?
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