Outsourced functions
In this lesson, you'll learn how to handle outsourced functions during an audit and when you need to rely on service organisations' controls. Understanding this is crucial for your AA exam, as outsourced services like payroll and debt collection create separate control environments you must evaluate and test.
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In this lesson
- 0:00 Understanding outsourced functions and service organisations
- 0:38 Materiality and risk assessment of outsourced services
- 1:55 Type one and type two reports explained
- 3:34 Planning audit procedures with external experts
- 4:50 Evaluating expert objectivity and competence
- 5:20 Scope, instructions, and engagement letters
- 5:41 Reviewing expert working papers and conclusions
About this lesson
You'll discover the key steps auditors follow: assessing materiality, contacting and visiting the service organisation, and obtaining Type 1 or Type 2 reports under ISA 3402. Type 1 reports evaluate control design effectiveness, while Type 2 reports assess whether controls actually operate correctly in practice. This distinction is essential for determining what audit evidence you can rely on. The lesson also covers using audit experts for specialist areas like biological assets. You'll learn to evaluate an expert's objectivity and competence before engagement, agree clear scope and instructions, then review their working papers and conclusions against your own audit findings. This systematic approach ensures you gather reliable evidence from third parties while maintaining audit quality and compliance with auditing standards.
Duration: 7m
Transcript
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