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What is a type 1 & type 2 report please. I need a simplified explanation of what they are, when they are used & what for please. I gathered that they have to do with outsourcing but still not clear.
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If Co A (your client) outsources a finance function (e.g. payroll) to a service provider (Co X), Co A (and you) will need assurance that the control objectives relating to payroll are being achieved. You cannot audit Co X (nor can any of the auditors of Co X’s numerous clients). So Co X commissions an assurance report which is then made available to its numerous clients and their auditors. This assurance report may be Type 1 (describing the controls) or Type 2 (providing assurance that the controls have operated effectively throughout a specified period).
These reports are described in more detail on page 91 of the notes.
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