PLEASE EXPLAIN

11. Which of the following is least likely entitled to the report of the service organization auditor on the suitability of the design and operating effectiveness of the service organization?

a. Service organization's management

b. Service organization's customers

c. Client's auditors

d. Service organization's stockholders

12. Under PSA 402, the objectives of the user auditor, when the user entity uses the services of a service organization, are:

a. To obtain an understanding of the nature and significance of the services provided by the service organization and their effect on the user entity's internal control relevant to the audit, sufficient to identify and assess the risks of material misstatement.

b. To design and perform audit procedures responsive to those risks.

c. Both a and b

d. Either a or b

13. If the user auditor is unable to obtain a sufficient understanding from the user entity, the user auditor shall obtain that understanding from one or more of the following procedures, except:

a. Obtaining a type 1 or type 2 report, if available.

b. Contacting the service organization, but not through the user entity, to obtain specific information.

c. Visiting the service organization and performing procedures that will provide the necessary information about the relevant controls at the service organization.

d. Using another auditor to perform procedures that will provide the necessary information about the relevant controls at the service organization.

14. When the user auditor's risk assessment includes an expectation that controls at the service organization are operating effectively, the user auditor shall obtain audit evidence about the operating effectiveness of those controls from one or more of the following procedures: (Choose the incorrect one)

a. Obtaining a type 1 report, if available.

b. Obtaining a type 2 report, if available.

c. Performing appropriate tests of controls at the service organization.

d. Using another auditor to perform tests of controls at the service organization on behalf of the user auditor.

15. Statement 1: The user auditor shall inquire of management of the user entity whether the service organization has reported to the user entity, or whether the user entity is otherwise aware of, any fraud, non-compliance with laws and regulations or uncorrected misstatements affecting the financial statements of the user entity.

Statement 2: The use of a service organization for external bookkeeping services (ranging from the processing of certain transactions such as payment of payroll taxes and maintenance of their accounting records to the preparation of their financial statements) relieves management of the smaller entity and, where appropriate, those charged with governance of their responsibilities for the financial statements.

Statement 3: The user auditor shall evaluate how use of a service organization affect the nature, timing and extent of the user auditor's further audit procedures, including the effect on the user auditor's conclusions and user auditor's report.

a. True, False, True c. False, True, True

b. True, True, True d. False, False, True

16. The following statements relate to the reporting requirements under PSA 402. Which is incorrect?

a. The user auditor shall modify the opinion in the user auditor's report if the user auditor is unable to obtain sufficient appropriate audit evidence regarding the services provided by the service organization relevant to the audit of the user entity's financial statements.

b. The user auditor shall not refer to the work of a service auditor in the user auditor's report containing an unmodified opinion unless required by law or regulation to do so.

c. If reference to the work of a service auditor is relevant to an understanding of a modification to the user auditor's opinion, the user auditor's report shall indicate that such reference does not diminish the user auditor's responsibility for that opinion.

d. The user auditor may not need the consent of the service auditor when making such a reference as it is implicitly and ethically permitted.

Using the Work of Internal Auditors

17. The independent auditors might consider the procedures performed by the internal auditors because:

a. They are employees whose work must be reviewed during substantive testing.

b. They are employees whose work might affect the independent auditors' work.

c. Their work impacts upon the cost/benefit tradeoff in evaluating inherent limitations.

d. Their degree of independence may be inferred by the nature of their work.

18. The work of internal auditors may affect the independent's auditor's

I. Procedures performed in obtaining an understanding of internal control

II. Procedures performed in assessing the risk of material misstatement

III. Substantive procedures performed in gathering direct evidence

a. I and III only c. II and III only

b. I and II only d. I, II and III

19. Which of the following is most correct regarding external auditors use of internal auditors directly on the audit engagement?

a. Discourage c. Encourage

b. Prohibit d. Permit

20. In making judgments about the effect of the internal auditors' work on the external auditor's procedures in specific audit areas, which of the following is not among three issues related to the audit areas that should be considered by the external auditor?

a. Materiality of the financial statement amounts.

b. Risk of material misstatement of the assertions related to these financial statement amounts.

c. Degree of subjectivity involved in the evaluation of the audit evidence gathered in support of the assertions.

d. Review of quality of audit policies, programs, and procedures.

WILL GIVE DISLIKE FOR WRONG ANSWERS