Chapter 8

Question 1

Service Organisations ISA 402

Answer 1

A service organisation is a third-party organisation that provides services to user relevant to financial reporting.

E.g:
- Maintenance of accounting records
- Management of assets
- Payroll

Question 2

ISA 402 requires the user auditor to consider what?

Answer 2

-Obtain an understanding of the services provided (nature/materiality)

• Consider risks attached
• Assess competency and reputation of third-party
• Assess the internal controls that exist between the companies
• Assess the sources of evidence available
• Assess whether the service auditors report on internal controls is required

Question 3

What are substantive procedures that may be considered when comes to evidence available from third-party?

Answer 3

• Inspecting documents and records held by user
• Inspecting documents and records held by service provider
• Obtaining confirmation of balances and transaction from the service provider
• Performing analytic procedures on the records maintained or reports received

Question 4

How many types of reports are there from management describing internal controls when it comes to the third-party services?

Answer 4

2

• Type 1 report
• Type 2 report

Question 5

What is in a type 1 report?

Answer 5

Service auditor provides reasonable assurance re the description of internal controls.

Low level of assurance

Question 6

What is in a type 2 report?

Answer 6

Service auditor provides reasonable assurance re the description of internal controls and disclosure of tests carried out and conclusions on operational effectiveness.

High level of assurance