Auditing Information Systems, Second Edition

6.1. ASSESSING FINANCIAL STABILITY OF VENDOR ORGANIZATIONS

Service organizations and application vendors provide services that are often critical to the success of their client organizations. Any disruptions in service could significantly impair the ability of client organizations to serve the needs of their customers. If a disruption lasts for an extended period of time, the client organization could begin to lose customers and eventually suffer significant revenue losses. Disruptions in service could be the result of poor operating procedures, outside competition, or poor management decisions at the vendor organization. Eventually these problems will surface in their financial statements. As discussed in Chapter 5, one of the first steps that the project development team at the client organization should perform after the decision has been made to utilize a service organization is to examine a copy of the most recent service auditor's report from each of the bidding service organizations. Such an examination should take place before any contract is entered into with the service organization. Another step the project development team should perform prior to signing a contract with a service organization or application vendor is to analyze the financial statements of each prospective vendor organization to obtain reasonable assurance that it is in sound financial condition for the foreseeable future. Obviously, the project development team will have to employ the services of a ...