If an external auditor's client has used a service organization during the year for some of its payroll processing and accounting,which of the following steps should the external auditor take if he or she decides to use the service organization auditor's report as audit evidence that the entity's controls are operating effectively for certain assertions?
A)Consider the sufficiency and appropriateness of the evidence provided by the service organization's auditor's report about the effectiveness of controls intended to prevent or detect material misstatements in the particular assertions.
B)Double-date the audit report to show the date of the service organization's audit and the date of the client's audit.
C)The auditor should make reference to the report of the service auditor as a basis,in part,for his or her own opinion on the entity's financial statements.
D)Re-perform each of the audit tests used by the service organization auditor.

Question

Quizplus · Accepted Answer

The external auditor should consider the sufficiency and appropriateness of the evidence provided by the service organization's auditor's report about the effectiveness of controls intended to prevent or detect material misstatements in the particular assertions. This will help the auditor determine the extent to which reliance can be placed on the service organization's controls. Double-dating the audit report (option B) is not necessary and does not provide additional evidence. Making reference to the service auditor's report (option C) is necessary, but the main focus should be on evaluating the evidence provided by the report. Re-performing each of the audit tests used by the service organization auditor (option D) is not necessary if the auditor can rely on the effectiveness of the service organization's internal controls.

If an External Auditor's Client Has Used a Service Organization