AUD 3

Question 1

Control environment factors include:

Answer 1

• Communication and enforcement of integrity and ethical values.
• Commitment to competence.
• Participation of those charged with governance.
• Management’s philosophy and operating style.
• Organizational structure.
• Assignment of authority, responsibility, and accountability.
• Human resource policies and practices.

Question 2

Service organization’s report

Answer 2

There are two types of reports on the processing of transactions by service organizations:

1. “reports on controls placed in operation”
2. “reports on controls placed in operation and tests of operating effectiveness.”

The former do not include tests of operating effectiveness and, therefore, are not intended to provide the user auditor with a basis for reducing the assessment of control risk. Accordingly, such reports should include a disclaimer of opinion regarding the operating effectiveness of the controls.