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

Nirmal Logistics Ltd outsources payroll processing to Apex Services Pvt Ltd. CA Iyer is engaged as service auditor under SAE 3402 to report on Apex's controls. Apex asks that the report cover controls over preparation of Apex's own annual financial statements, as these 'are also controls at the service organisation'. What is the correct conclusion?

The controls over Apex's own financial statements should be excluded. Controls at a service organisation cover only those relating to the control objectives stated in the description of its system. Controls related to preparing the service organisation's own financial statements are expressly outside that definition.

  1. AInclude them, since all controls at a service organisation fall within the definition
  2. BInclude them only if user auditors request it in writing
  3. CInclude them, but only in the description of the system and not in the opinion
  4. DExclude them, as controls not related to the control objectives stated in the description of the system, such as controls over the service organisation's own financial statements, are not 'controls at the service organization'Correct

Explanation

The definition covers aspects of user entities' information systems maintained by the service organisation and related control environment, monitoring and control activities as they relate to services provided. It excludes controls not related to achieving the stated control objectives, for example controls related to preparing the service organisation's own financial statements. Hence the request should be declined.

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