Academic journal article Journal of Accountancy

Statement on Auditing Standards No. 70

Academic journal article Journal of Accountancy

Statement on Auditing Standards No. 70

Article excerpt

Note: Statements on Auditing Standards are issued by the Auditing Standards Board, the senior technical body of the Institute designated to issue pronouncements on auditing matters. Rule 202 of the Institute's Code of Professional Conduct requires compliance with these standards.

REPORTS ON/THE PROCESSING OF TRANSACTIONS BY SERVICE ORGANIZATIONS

(SUPERSEDES STATEMENT ON AUDITING STANDARDS NO. 44, AICPA, PROFESSIONAL STANDARDS, VOL. 1, AU SEC. 324)

  CONTENTS
  Introduction and Applicability/1-4
The User Auditor's Consideration of the
  Effect of the Service Organization
  on the Internal Control Structure
  of the User Organization and the
  Availability of Audit Evidence/5-17
  The Effect of a Service Organization
  on a User Organization's Internal
  Control Structure/6
Planning the Audit/7-10
Assessing Control Risk at the User
   Organization/I1-16
Audit Evidence From Substantive
  Audit Procedures Performed by
  Service Auditors/17
Considerations in Using a Service
    Auditors Report/18-21
Responsibilities of Service
  Auditors/22-58
  Reports on Policies and Procedures
   Placed in Operation/25-40
  Reports on Policies and Procedures
   Placed in Operation and Tests of
       Operating Effectiveness/41-56
  Written Representations of the
   Service Organization's
  Management/57
  Reporting on Substantive
     Procedures/58
 Effective Date/59

INTRODUCTION AND APPLICABILITY

1. This Statement provides guidance on the factors an independent auditor should consider when auditing the financial statements of an entity that uses a service organization to process certain transactions. This Statement also provides guidance for independent auditors who issue reports on the processing of transactions by a service organization for use by other auditors.

2. For purposes of this Statement, the following definitions apply:

* User organization--The entity that has engaged a service organization and whose financial statements are being audited

* User auditor--The auditor who reports on the financial statements of the user organization

* Service organization--The entity (or segment of an entity) that provides services to the user organization

* Service auditor--The auditor who reports on the processing of transactions by a service organization

* Report on policies and procedures placed in operation--A service auditor's report on a service organization's description of its control structure policies and procedures that may be relevant to a user organization's internal control structure, on whether such policies and procedures were suitably designed to achieve specified control objectives, and on whether they had been placed in operation as of a specixfic date

* Report on policies and procedures placed in operation and tests of operating effectiveness--A service auditor's report on a service organization's description of its control structure policies and procedures that may be relevant to a user organization's internal control structure,' on whether such policies and procedures were suitably designed to achieve specified control objectives, on whether they had been placed in operation as of a specific date, and on whether the policies and procedures that were tested were operating with sufficient effectiveness to provide reasonable, but not absolute, assurance that the related control objectives were achieved during the period specified

1. The guidance in this Statement is applicable to the audit of the financial statements of an entity that obtains either or both of the following services from another organization:

* Executing transactions and maintaining the related accountability

* Recording transactions and processing related data Service organizations that provide such services include, for example, bank trust departments that invest and hold assets for employee benefit plans or for others, mortgage bankers that service mortgages for others, and electronic data processing (EDP) service centers that process transactions and related data for others. …

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