How might the use of an external service provider to process financial statement transactions affect the audit of the entity’s financial statements?

With the rapid growth of cloud computing, many organizations are contracting with third-party service providers to process and store all kinds of data off site.
In doing so, entities are now dependent on the effectiveness of controls provided by external software providers and data centers that are used to generate and store a huge volume of important information for making critical business decisions.
a. How might the use of an external service provider to process financial statement
transactions affect the audit of the entity’s financial statements?
b. What options are available to the auditor of the user entity’s financial statements to
obtain information about the design of internal controls over financial reporting at
the service organization?
c. What kind of report could the auditor of the user entity obtain from the service organization, if the user auditor needed information about the operating effectiveness of controls at the service organization?
d. What type of report might the service organization provide to management of an
entity that uses the service center to process quality control reports related to the user
entity’s manufacturing processes?

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