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

question 59

Multiple Choice

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 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.

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Definitions:

Facilities Department

A department within an organization responsible for the management and maintenance of buildings, grounds, and other physical infrastructures to support operational needs.

Employee Time

The amount of work time provided by employees, often tracked for payroll, productivity analysis, and costing purposes.

Space Occupied

The amount of physical area used by an organization for its operations, often measured in square feet or meters.

Step-Down Method

A cost allocation method used in accounting to assign service department costs to production departments in a sequential manner based on benefits received.