When Services Are Outsourced to a Third Party Service Provider

question 35

Multiple Choice

When services are outsourced to a third party service provider that significantly impact financial reporting,what should the auditor do to gain evidence over the operating effectiveness of the internal controls at the third party?

• A)Review the Type 2 Service Auditor's report (Report on the suitability of the design and operating effectiveness of controls of a service organization).
• B)Review the Type 1 Service Auditor's report (Report on the suitability of the design of controls of a service organization).
• C)Obtain a comfort letter from the third party on their internal controls.
• D)Review the independent auditor's report for the third party.

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Definitions:

Market Power

The ability of a firm to influence the price of its product or service in the market, often through controlling supply, influencing demand, or both.

Differentiated Products

Goods or services that are distinguished from similar offerings by characteristics such as quality, design, branding, or features.

Product Differentiation

The strategy of making a product or service stand out from competitors in the market by emphasizing unique features, quality, or branding.

Market Structure

The organizational and other characteristics of a market that influence the nature of competition and pricing.