Service Organisations ISA 402
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
ISA 402 requires the user auditor to consider what?
-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
What are substantive procedures that may be considered when comes to evidence available from third-party?
- 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
How many types of reports are there from management describing internal controls when it comes to the third-party services?
2
- Type 1 report
- Type 2 report
What is in a type 1 report?
Service auditor provides reasonable assurance re the description of internal controls.
Low level of assurance
What is in a type 2 report?
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
