Page 48 - CA Final PARAM Digital Book.

Answer ➢ As per SA 402 “Audit Considerations relating to an Entity using a Service Organization”, services
provided by a service organisation are relevant to the audit of a user entity’s financial statements
when those services, and the controls over them, are part of the user entity’s information system,
including related business processes, relevant to financial reporting. (E.g. Security, Cleaning
services outsourcing may not be relevant for auditor)

Although most controls at the service organisation are likely to relate to financial reporting, there
may be other controls that may also be relevant to the audit, such as controls over the safeguarding
of assets. A service organisation’s services are part of a user entity’s information system, including
related business processes, relevant to financial reporting if these services affect any of the
following:
Most relevant service is given by ESCAPE button.
Estimates-The financial reporting process used to prepare the user entity’s financial
statements, including significant accounting Estimates and disclosures; (E.g. Useful life of
assets, inventory valuation etc)
Significant -The classes of transactions in the user entity’s operations that are Significant
to the user entity’s financial statements; (E.g. online sales occur from third party websites
like amazon / flipkart etc)
Captures -How the user entity’s information system Captures events and conditions, Other
than transactions, that are significant to the financial statements; (E.g. Impairment testing
of plant, goodwill, financial instruments are outsourced to ca firm)
Accounting -The related Accounting records, either in electronic or manual form,
supporting information and specific accounts in the user entity’s financial statements that
are used to initiate, record, process and report the user entity’s transactions; this includes
the correction of incorrect information and how information is transferred to the general
ledger; (E.g. Creditor ledger accounting outsourced)
Procedures -The Procedures, within both information technology (IT) and manual
systems, by which the user entity’s transactions are initiated, recorded, processed,
corrected as necessary, transferred to the general ledger and reported in the financial
statements; (E.g. Raw material price collection, party evaluation, quality check is
outsourced)
Entries -Controls surrounding journal Entries, including non-standard journal entries used
to record non-recurring, unusual transactions or adjustments. (E.g. Year end journal entries
are passed by specially hired CA Firm)

QNO Sub Service Organisation Old Course – (M15E, SM17, PM17, SM21)
53.000 TITANIUM CNO—Unique
When a sub-service organization performs services for a service organization, there are two alternative
methods of presenting the description of controls The service organization determines which method

will be used As a user auditor what information would you obtain about controls at a sub-service
organization?
Answer Part I -- Relevant Standards & Laws
▪ SA 402, Audit Considerations relating to an Entity Using a Service Organisation
Part II -- Requirements of Relevant Standards & Laws
➢ Use of Subservice Organisation: - It may happen that UE is taking services from,
SO which are in turn given by SSO. SSO can be related to SO or sperate entity
all together.
In accordance with SA 402 a user entity may use a service organisation that in turn uses a sub-
service organisation to provide some of the services provided to a user entity that are part of the
user entity’s information system relevant to financial reporting. The sub-service organisation may
be a separate entity from the service organisation or may be related to the service organisation.

➢ Controls at SSO: - Auditor needs to consider controls at SSO. Two important
factors Interactions / Nature & Materiality of Transactions in determining

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