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Q1)ma’am when an entity has outsourced say payroll responsibility to service organisation then in that case can the entity’s internal audit department conduct tests and procedures at the service organisation? i ask this because, service organsaiotn may cater its services to many other companies too, and if it allows every customer of theirs to perform tests then it can thwart its operations. But then it can be argued otherwise too.
what’s your say on this?
Q2) Moreover maam can auditors of the entity, themselves or by way of appointing other auditor conduct procedures at the service organisation of the client?
1 – you see the issue perfectly – that there would be chaos – it’s neither practicable nor necessary! This is on the periphery of the AA syllabus and more relevant to AAA. You will find on page 89 of the AAA notes that the external auditor of the service organisation may provide an “assurance report” on the service organisation’s controls which is then made available to all clients and their auditors.
2 – again you can see this on page 89 of the AAA notes. This would only be in the most exceptional of cases (as a last resort) where sufficient evidence cannot be obtained from other sources. Given the HUGE expansion in outsourcing since the relevant standard (ISA 420) was first published (2004), I don’t think this would ever happen now.
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