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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Using the work of others

Brightwell Retail outsources its payroll processing to Calder Payroll Services. The auditor of Brightwell obtains a Type 2 report from Calder's service auditor covering the period 1 January to 30 September, while Brightwell's year end is 31 December. What is the auditor's most appropriate response under ISA 402?

The auditor should use the Type 2 report for the period it covers and obtain further evidence for the uncovered three months, for example through inquiries about control changes or additional testing. Ignoring the report or accepting it blindly would both be inappropriate.

  1. AAccept the report in full, as a Type 2 report covers operating effectiveness for all purposes
  2. BDisregard the report, because it does not cover the whole year
  3. CConsider the report's coverage, and perform additional procedures or obtain evidence for the remaining three months, such as inquiries about changes in controlsCorrect
  4. DRequest that Calder's service auditor reissue the audit opinion on Brightwell's financial statements

Explanation

A Type 2 report covers design, implementation and operating effectiveness over a period, but here it leaves 1 October to 31 December uncovered. ISA 402 requires the user auditor to determine whether the report provides sufficient evidence and to consider additional procedures for the gap period. Disregarding it entirely ignores useful evidence for the covered period.

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