Wiley Practitioner's Guide to GAAS 2020

13AU-C 402 Audit Considerations Relating to an Entity Using a Service Organization

Scope

Definitions of Terms

Objective of AU-C Section 402

Requirements

Types of Service Auditor’s Reports

Considerations in Using a Service Auditor’s Report

AU-C 402 Illustration—Audit Program for an Auditor’s Review of a Service Auditor’s Report

SCOPE

More and more entities are outsourcing activities to service organizations. There is often a belief by the user organization that the service organization can be totally relied upon and that the user organization needs only to have limited, if any, controls.

AU-C 402 is intended to help auditors determine what additional information they might need when auditing an entity that uses a service organization. It expands on the application of AU-C 315 and 330 in obtaining an understanding of the user entity, including internal control. (AU-C 402.01) AU-C 402 also makes it clear that the guidance applies if an entity obtains services from another organization that is part of the entity’s information system. Also, it clarifies the factors that an auditor should use in determining the significance of a service organization’s controls to the user organization’s controls. In other words, the audit procedures that are appropriate when a service organization’s procedures are significant to the audited entity are not optional. The auditor must evaluate the interaction between the audited entity and all service organizations used by that entity. (AU-C 402.02) ...