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

Delta & Co audits Vantage Logistics, which outsources its inventory warehousing and record keeping to Stockwell Ltd. Stockwell's service auditor issued a type 2 report, but the user auditor finds that the report contains a qualified opinion on the operating effectiveness of the controls over inventory movements. The auditor had planned to rely on those controls to reduce substantive testing. Which response is most appropriate?

The auditor should not rely on the controls and should increase substantive testing, for example by confirming inventory held by Stockwell or attending counts there. The service auditor's qualification removes the basis for control reliance, but it does not by itself require a modified opinion or withdrawal.

  1. ARely on the controls anyway, because the service auditor is independent
  2. BCite the service auditor's qualification in Delta's audit report as the reason for a modified opinion
  3. CTreat the controls as not operating effectively and perform more extensive substantive procedures, such as attending counts at the warehouse or confirming inventory with StockwellCorrect
  4. DWithdraw from the engagement, because audits of outsourced inventory cannot be completed

Explanation

The qualification means the controls cannot be relied upon, so the planned control reliance is unsupported. The user auditor should assess the risk of material misstatement accordingly and design substantive procedures such as inventory confirmation or attendance at counts at the service organisation. A modified opinion is only needed if sufficient appropriate evidence still cannot be obtained. Withdrawal is not required.

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