You are also the manager responsible for the audit of another client, Lucy Co, which is a listed company. You are reviewing the working papers of the audit file for the year ended 31 October 20X2, and the audit senior has left a note for your attention:
‘Lucy Co outsources its entire payroll, invoicing and credit control functions to Wong Co. In September 20X2, Wong Co suffered a computer virus attack on its operating system, resulting in the destruction of its accounting records, including those relating to Lucy Co. We have therefore been unable to perform the planned audit procedures on payroll, revenue and receivables, all of which are material to the financial statements. Wong Co has manually reconstructed the relevant figures as far as possible, and has supplied a written statement to confirm that they are as accurate as possible, given the loss of accounting records.’
i) Comment on the actions that should be taken by the auditor, and the implications for the auditor’s report.
ii) Discuss the quality control procedures that should be carried out by the audit firm prior to the auditor’s report being issued.