Skip to content

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

Nirmal Payroll Services Pvt Ltd, a service organisation, engages CA Rao to report on its controls under SAE 3402. The management also asks CA Rao to include testing of controls over the preparation of Nirmal's own statutory financial statements in the report and to allow free circulation of the report to any third party. What is the correct approach?

Controls over the service organisation's own financial statements are outside the engagement because they are unrelated to the control objectives in its system description. The service auditor may also add wording restricting distribution to intended users, as the criteria suit only users who understand the system.

  1. AInclude those controls, because all controls of the service organisation fall within the engagement, and permit unrestricted circulation
  2. BExclude controls over Nirmal's own financial statements, since they are not related to the stated control objectives, and consider adding wording restricting distribution to intended usersCorrect
  3. CInclude the controls only if the user entities pay an additional fee, and prohibit all distribution
  4. DExclude all controls except those relating to the control environment, and allow circulation to any party

Explanation

Controls at the service organisation do not include controls unrelated to the control objectives stated in its description of the system, such as controls over its own financial statements. The criteria are relevant only to users who understand how the system is used for financial reporting, so the auditor may restrict distribution to intended users.

Did you get it right without looking?

One question tells you little. A timed set on Prospective Financial Information and Other Assurance Services shows your real accuracy, how long you take and where you lose marks.

Practise Prospective Financial Information and Other Assurance ServicesFree diagnostic mock

More Prospective Financial Information and Other Assurance Services questions