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New standards for engagements involving outsourcing
Guidance for CPAs who audit the financial statements of entities that outsource work to service organizations and those who report on controls at service organizations is being revamped and relocated.
Since 1992, Statement on Auditing Standards (SAS) no. 70, Service Organisions, has been the source of the requirements and guidance for CPAs reporting on controls at service organizations and for CPAs auditing the financial statements of entities that use service organizations to accomplish tasks that may affect their financial statements. SAS no. 70 has been divided and replaced by two new standards. One is a Statement on Standards for Attestation Engagements (SSAE) also known as an attestation standard; the other is a SAS (an auditing standard). The requirements for reporting on controls at service organizations has been placed in SSAE no. 16, Reportingon Controls at a Service Organization (see Official Releases, page 82). The requirements for auditing the financial statements of entities that use service organizations remains in the auditing standards in a new SAS, Audit Considerations Relating to an Entity Using a Service Organization.
Moving the requirements for CPAs reporting on controls at service organizations to the attestation standards better reflects the nature of the work being performed. SASs primarily provide guidance on reporting on an audit of financial statements, whereas the SSAEs primarily provide guidance on reporting on other subject matter. In a service auditor's engagement, a CPA reports on a service organization's description of its system and on a service organization's controls that are relevant to user entities' internal control over financial reporting. Because an examination of a description of a system and controls is not an audit of financial statements, the Auditing Standards Board (ASB) agreed that the new standard should be moved to the attestation standards. This decision also aligns with the ASB's effort to converge its standards with those of the International Auditing and Assurance Standards Board (IAASB). SSAE no. 16 is based on the IAASB's assurance standard (the equivalent of an attestation standard) for service auditors, International Standard on Assurance Engagements (ISAE) no. 3402, Assurance Reports on Controls at a Service Organization.
USING A SERVICE ORGANIZATION
Many companies function more efficiently and profitability by outsourcing certain tasks or functions to other...