SAS 70: Reports on the Processing of Transactions by Service Organizations

By Warner, Paul D. | The CPA Journal, November 1992 | Go to article overview

SAS 70: Reports on the Processing of Transactions by Service Organizations


Warner, Paul D., The CPA Journal


The "expectation gap" SASs significantly changed auditing standards, but none more so than did SAS 55. It has led to an extensive rewrite of SAS 44 Special-Purpose Reports on Internal Accounting Control at Service Organizations. After three years work, SAS 44 is being replaced by SAS 70 Reports on the Processing of Transactions by Service Organizations.

SAS 70 comes into play when one entity obtains one or both of the following services from another organization:

* Executing transactions and maintaining related accountability; and

* Recording transactions and processing data.

The organizations contemplated include not only EDP service centers but entities such as bank trust departments and mortgage bankers. The guidance may also be relevant where another organization develops, provides and maintains software used by the other entity. The SAS also has several specific exclusions such as banks processing normal demand deposit and checking transactions and joint ventures. SAS 70 gives guidance to the auditor of the organization using the service (user auditor) and the auditor of the organization providing the service (the service auditor).

THE USER ORGANIZATION AUDITOR

The user auditor is required to obtain an understanding of the service organization's internal control structure to the extent necessary to be able to plan the audit and assess control risk. Where the service organization merely records and processes transactions and the user organization maintains accountability, it may be possible for the user auditor to ignore the service organization's internal control structure.

PLANNING THE AUDIT

SAS 55 requires the auditor to gain an understanding of a client's internal control structure, i.e., its control environment, accounting system, and control policies and procedures, sufficient to plan the audit. The portion of the client's internal control structure that is resident at the service center is included in this requirement. In gaining the understanding of the service center's internal control structure, the user auditor should consider factors such as-

* The significance of the financial statement assertions that are affected by policies and procedures at the service organization;

* The inherent risk associated with the assertions affected by policies and procedures at the service organization;

* The nature of the services provided by the service organization and whether they are highly standardized and used extensively by many user organizations or unique and used only by a few (frequently, user organizations have systems custom built by service organizations. If this is the case, it is more appropriate for the user auditor to perform the review than the service auditor.);

* The extent to which the user organization's internal control structure interacts with policies and procedures at the service organization;

* The user organization's internal control structure policies and procedures that are applied to transactions affected by the service organization's activities;

* The terms of the contract between the user organization and the service organization for example, their respective responsibilities, extent of the service organization's discretion to initiate transactions, and other representations of the service organization;

* The service organization's capabilities, including its record of performance, insurance coverage, and financial stability;

* The user auditor's prior experience with the service organization;

* The extent of auditable data in the user organization's possession; and

* The existence of specific regulatory requirements that may dictate application of audit procedures beyond those required to comply with GAAS.

The user auditor should also consider any available information in the user's possession about policies and procedures at the service organization, such as user manuals, system overviews, technical manuals, and third-party reports.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

SAS 70: Reports on the Processing of Transactions by Service Organizations
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.