Main changes from AUS 404 (July 2002) AuMain changes from AUS 404 (July 2002) Audit Implications Relating to Entities Using a Service Entity

Main changes from AUS 404 (July 2002) Audit Implications Relating to Entities Using a Service Entity

The main differences between this Auditing Standard and the Auditing Standard issued by the Auditing & Assurance Standards Board of the Australian Accounting Research Foundation, AUS 404 (July 2002) Audit Implications Relating to Entities Using a Service Entity, are that in this Auditing Standard:

1. The word ‘shall’, in the bold-type paragraphs, is the terminology used to describe an auditor’s mandatory requirements, whereas an auditor’s degree of responsibility is described in AUS 404 by the word ‘should’.
2. The explanatory guidance paragraphs provide guidance and illustrative examples to assist the auditor in fulfilling the mandatory requirements, whereas in AUS 404 some obligations are implied within certain explanatory paragraphs. Accordingly, such paragraphs have been redrafted to clarify that the matter forms part of the explanatory guidance.
3. The application is extended to cases where the service organisation uses the services of a sub-service organisation.
4. The following additional mandatory requirements are included (these mandatory requirements are either not contained in AUS 404 or have been expanded or re-worded in this Auditing Standard):

(a) The auditor shall consider how an entity’s use of a service organisation affects the entity’s internal control so as to identify and assess the risk of material misstatement and to design and perform further audit procedures (paragraph 5). In AUS 404, the auditor should assess the effect that a service entity has on audit risk to enable the auditor to plan and develop an effective audit approach.

(b) In obtaining an understanding of the entity and its environment, the auditor shall determine the significance of service organisation activities to the entity and the relevance to the audit (paragraph 9).

(c) If the auditor concludes that the activities of the service organisation are significant to the entity and relevant to the audit, the auditor shall obtain a sufficient understanding of the entity and its environment, including its internal control, to identify and assess the risks of material misstatement and design further audit procedures in response to the assessed risk (paragraph 13).

(d) If the auditor uses the report of a service organisation auditor, the auditor shall consider the professional competence of that auditor in the context of the specific assignment undertaken by the service organisation auditor (paragraph 17).

(e) When using a service organisation auditor’s report, the auditor shall consider the nature of and content of that report (paragraph 19).

(f) The auditor shall consider the scope of work performed by the service organisation auditor and shall evaluate the usefulness and appropriateness of reports issued by the service organisation auditor (paragraph 21). In AUS 404, when the auditor uses a report issued by the service entity auditor, the user auditor should consider the scope of the work performed and assess whether the report is sufficient and appropriate for its intended use by the user auditor.