Audit when service org involved…

  • Creator
    Topic
  • #179982
    Anonymous
    Inactive

    Payroll Data Co. (PDC) processes payroll transactions for a retailer. Cook, CPA, is engaged to express an opinion

    on a description of PDC’s internal controls implemented as of a specific date. These controls are relevant to the retailer’s internal control, so Cook’s report may be useful in providing the retailer’s independent auditor with information necessary to plan a financial statement audit. Cook’s report should:

    a. Contain a disclaimer of opinion on the operating effectiveness of PDC’s controls.

    b. State whether PDC’s controls were suitably designed to achieve the retailer’s objectives.

    c. Identify PDC’s controls relevant to specific financial statement assertions.

    d. Disclose Cook’s assessed level of control risk for PDC.

    Ans: a

    My confusion:

    1. Why wold Cook disclaim an opinion on the effectiveness of control when they are specifically engaged to express an opinion on control?

    2. So internal controls implemented as of a specific date is then an audit attestation engagement to just check on internal control implementation here and NOT an audit on internal control? if it is, then it makes sense.

    Please correct me if i am wrong. thanks

Viewing 5 replies - 1 through 5 (of 5 total)
  • Author
    Replies
  • #434716
    Goal75
    Participant

    @cpa_man, from my understanding, the question is asking for an opinion on the “implementation of the controls”. So, the report has to specify a Disclaimer for the “Operating effectiveness of the Internal Control”, because he did not audit the effectiveness. Your assumption 2 is more agreeable explanation. Hope that helps.

    If I am wrong, someone correct me. I would be glad to fix my understanding before the exam.

    REG 83 (Lost credit), 78 🙂
    AUD 8/29/13
    BEC 67, 75
    FAR 76

    #434717

    @Goal75 I believe you are correct. At least that is my understanding, as well. This sounds like a Type 1 Report, not a Type 2 Report.

    #434718

    @cpa_man

    Always look for what exactly auditor had been hired to issue opinion on. Was it for effectiveness of I/C: No.

    Auditor had been hired to collaborate/attest management assertion/statement related to a description of PDC's internal controls implemented as of a specific date. Nothing else, nothing more.

    Again, to clear up your confusion, auditor was NOT engaged to express opinion on I/C. He was engaged to express opinion on DESCRIPTION of internal controls as of specific date. Thus, no opinion or disclaimer (as not to mislead) on I/C effectiveness.

    In AUD, one single word or phrase a lot times makes huge difference. A lot of game on words 😉

    Becker Class of Jan - Aug 2013: FARB DONE!!!!
    CPA license pending 🙂

    #434719
    Anonymous
    Inactive

    Thanks a lot guys. Really helpful.

    #434720

    Hey SeattleAccountant, get off the forum and take a break for a few days! 😉 You deserve it!

    In all seriousness, though, thanks for sticking around!

Viewing 5 replies - 1 through 5 (of 5 total)
  • The topic ‘Audit when service org involved…’ is closed to new replies.