Responses to the audit risks

Dear tutor,

I have some doubt over the solution of this question (option 3), why not option 1? Because IMO the response number 2 (The auditor should appoint an expert to properly assess the risks of misstatement ) is also a good safeguard to the increased audit risk.

Can you please explain?

Thank you!

“As at 1 July 20X5, you are an audit manager at Owl & Co and are responsible for auditing Hawk Co. Hawk Co produces kites and sells them directly to customers through its website. You are currently preparing the audit for the financial year ending 31 July 20X5.

During a planning meeting with the finance director, two key issues were identified.

Dismissal of the financial controller
The company’s financial controller, who had worked at Hawk Co for more than 20 years, was dismissed in May 20X5. The company has now received a claim for unfair dismissal. No replacement has been appointed yet, and the finance team is temporarily sharing the responsibilities.

Payables ledger supervisor
The payables ledger supervisor left in March 20X5, and a replacement was only appointed recently, in the past week. During the period without a supervisor, no reconciliations of supplier statements or trade payables accounts were carried out.

The finance director has also provided the latest management accounts so that you can perform preliminary analytical procedures. Based on this information, you have calculated the following ratios:

20X5-20X4
Gross profit margin 17% – 26%
Payables payment period 40 days – 75 days
Receivables collection period 38 days – 29 days

66
Which of the following are appropriate auditor responses to the increased audit risk
created by the finance team being allocated the work of the financial controller?
1 The audit team should be fully briefed and be alert throughout the audit for additional
errors
2 The auditor should appoint an expert to properly assess the risks of misstatement
3 The finance director should be requested to provide the audit team with assistance for
matters that cannot be addressed by the remaining finance function
4 The auditor should consider resigning from the engagement as audit risk cannot be
managed to an acceptable level
+ 1, 2 and 3
+ 2, 3 and 4
+ 1 and 3 only
+ 1 and 4 ”