When a company uses a service organization to prepare its payroll,the company's auditors
A) Have no obligation concerning the internal controls at the service organization.
B) Need to understand the internal controls over the transaction regardless of the location of the control.
C) Must audit the internal controls at the service organization.
D) Should include the audit report of the service company's auditors with their auditors' report.

Question

Quizplus · Accepted Answer

The company's auditors have an obligation to understand the internal controls over the transaction regardless of the location of the control. They need to obtain an understanding of the service organization's controls to assess the risk of material misstatement and to plan their audit procedures accordingly. However, they do not need to audit the internal controls at the service organization themselves.

When a Company Uses a Service Organization to Prepare Its