ACCA AAA · Chapter 18
Outsourced accounting functions
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ISA 402 and the user auditor’s response
Follow the transaction understand, test and conclude
Service organisation
- Third party providing services within user’s financial reporting system
- Examples: payroll, hosted IT, asset management or factoring
Audit relevance
- Records, processing and controls may sit outside user entity
- Understand services and their significance for internal control
- Identify RoMM and design responsive audit procedures
Not every outsourced service
- Focus on services relevant to financial reporting
Degree of interaction
- Processor only: user may reconcile output to input
- Service also executes transactions: reliance on its controls may rise
Sources of understanding
- Contract, manuals and user entity records
- Service organisation and service auditor reports
- Prior experience, supplemented by current evidence
If gaps remain
- Obtain and evaluate service auditor report
- Contact or visit service organisation through user entity
- Use another auditor at service organisation if appropriate
Changed arrangements
- Reassess previous audit approach after outsourcing
Type 1
- Description of system, objectives and designed/implemented controls
- Service auditor reports on design at a specified date
- Does not evidence operating effectiveness
Type 2
- Description plus service auditor tests/results over a period
- Provides assurance on design and operating effectiveness
Evaluate before use
- Check scope, period and controls relevant to user entity
- Consider complementary controls required at user entity
- Address any exceptions and period not covered
At the user entity
- Compare information sent with output received
- Test user controls over the service
- Perform substantive work from available records
- Check completeness/accuracy of service reports
At the service organisation
- Obtain evidence of control operation if relying on controls
- Perform procedures there or use another auditor
Other matters
- Enquire about reported fraud, NOCLAR and uncorrected misstatements
- If evidence remains insufficient, modify opinion under ISA 705
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