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CA Final · Advanced Auditing, Assurance and Professional Ethics · Prospective Financial Information and Other Assurance Services

CA Nisha, a service auditor, is issuing a SAE 3402 report on the controls at Bharat Payroll Services Pvt. Ltd., which processes payroll for many user entities. Management wants the report to also cover controls over preparation of Bharat Payroll's own financial statements. Which conclusion is correct?

Controls over the preparation of the service organisation's own financial statements fall outside the scope. SAE 3402 excludes controls not related to the control objectives stated in the description of the system, giving this as an example. Only aspects relating to the services provided are covered.

  1. AThose controls must be included because all controls of a service organisation fall in scope
  2. BThose controls are included only if the user entities' auditors request them
  3. CThose controls are outside the definition of controls at the service organisation, as they are not related to achieving the control objectives stated in the description of its systemCorrect
  4. DThose controls are included if they relate to the control environment

Explanation

SAE 3402 states that controls at the service organisation do not include controls not related to achieving the control objectives in the description of its system, for example controls over the service organisation's own financial statements. The control environment is relevant only when it relates to the services provided, so that option is wrong.

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