When a company uses a service organization to prepare its payroll,the company's auditors
A)have no obligation concerning the internal controls at the service organization.
B)need to understand the internal controls over the transaction regardless of the location of the control.
C)must audit the internal controls at the service organization.
D)should include the audit report of the service company's auditors with their auditors' report.

Question

Quizplus · Accepted Answer

The company's auditors need to understand the internal controls over the transaction regardless of the location of the control. While the service organization's auditors may have already issued an audit report on their internal controls, the company's auditors still have a responsibility to assess and understand those controls as they relate to the company's financial statements. The auditors may also choose to rely on the service organization's internal controls as part of their own audit work, which further emphasizes the need to understand those controls. Therefore, choice B is the best answer.

When a Company Uses a Service Organization to Prepare Its