ISA 402 Audit considerations relating to an entity using a service organization MCQs

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Many companies use service organisations to perform business functions such as Payroll processing, Receivables collection
ISA 402 Audit considerations relating to an entity using a service organization MCQs

ISA 402, Audit considerations relating to an entity using a service organization

Many companies use service organisations to perform business functions such as Payroll processing, Receivables collection. Here on MCQs.club we have prepared easy Multiple-choice Questions (MCQs) on ISA 402 revised IFAC that fully cover ISA 402, ISA 402 service organization, ISA 402 summary, ISA 402 MCQs with answers and are a basis for conclusions. These MCQ on SA 402 are helpful for Competitive exams, Professional accountancy exams and Business management exams.

  1. Many companies use service organisations to perform business functions such as:
    1. Payroll processing
    2. Receivables collection
    3. Pension management
    4. All of the above
  1. If a company uses a service organisation this will impact the audit as audit evidence will need to be obtained from the service organisation instead of, or in addition to, the client.
    1. True
    2. False
  1. The service organisation is an additional element to be taken into account when planning the audit and greater consideration needs to be made regarding obtaining sufficient appropriate evidence. The auditor will need to:
    1. Obtain an understanding of the service organisation sufficient to identify and assess the risks of material misstatement.
    2. Design and perform audit procedures responsive to those risks.
    3. Both A&B
    4. None
  1. The auditor should determine the effect the use of a service organisation will have on their assessment of risk. Which of the following issues should be considered?
    1. Reputation of the service organisation.
    2. Existence of external supervision.
    3. Extent of controls operated by service provider.
    4. Experience of errors and omissions and Degree of monitoring by the user.
    5. All of the above
  1. Sources of information about the service organization include:
    1. Obtaining a type 1 or type 2 report from the service organisation’s auditor
    2. Contacting the service organisation through the client.
    3. Visiting the service organisation.
    4. Using another auditor to perform tests of controls.
    5. All of the above
  1. Type 1 report –
    1. provides a description of the design of the controls at the service organisation prepared by the management of the service organisation.
    2. It includes a report by the service auditor providing an opinion on the description of the system and the suitability of the controls.
    3. Both A&B
    4. None
  1. Type 2 report –
    1. is a report on the description, design and operating effectiveness of controls at the service organisation.
    2. It contains a report prepared by management of the service organisation.
    3. It includes a report by the service auditor providing an opinion on the description of the system, the suitability of the controls, the effectiveness of the controls and a description of the tests of controls performed by the auditor.
    4. All of the above

  1. If service organisation’s controls are expected to operate effectively the auditor must:
    1. Obtain a type 2 report if available
    2. Perform tests of controls at the service organisation.
    3. Use another auditor to perform tests of controls.
    4. All of the above
  1. Service organization benefits to the audit include:
    1. The service organisation is external to the client, the audit evidence derived from it is regarded as being more reliable than evidence generated internally by the client.
    2. The service organisation is a specialist, it may be more competent in executing its role than the client’s internal department resulting in fewer errors.
    3. Both A&B
    4. None
  1. Service organization drawbacks to the audit include:
    1. The main disadvantage of outsourced services from the auditor’s point of view concerns access to records and information.
    2. If access to records and other information is denied by the service organisation, this may impose a limitation on the scope of the auditor’s work.
    3. Both A&B
    4. None

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