AICPA CPA-Auditing Exam - Topic 2 Question 123 Discussion

Question

Dunn, CPA, is auditing the financial statements of Taft Co. Taft uses Quick Service Center (QSC) to process its payroll. Price, CPA, is expressing an opinion on a description of the controls placed in operation at QSC regarding the processing of its customers' payroll transactions. Dunn expects to consider the effects of Price's report on the Taft engagement. Price's report should contain a (an):

Mabel · Accepted Answer

A) Description of the scope and nature of Price's procedures.

Mabel · Answer

B) Statement that Dunn may assess control risk based on Price's report.

Mabel · Answer

C) Assertion that Price assumes no responsibility to determine whether QSC's controls are suitably designed.

Mabel · Answer

D) Opinion on the operating effectiveness of QSC's internal controls.
Explanation
Choice 'a' is correct. Price, CPA (the 'service auditor') should include in his or her report a description of the scope and nature of the procedures performed.
Choices 'b' and 'd' are incorrect. A report on controls placed in operation does not provide an opinion on operating effectiveness, and therefore may not be used to assess control risk.
Choice 'c' is incorrect. A report on controls placed in operation includes a statement that, 'our examination included procedures to obtain reasonable assurance about whether the controls were suitably designed.'