During the audit of Indo limited, CA Harish observed that processing of accounting data was given to a third party on account of certain…

As per SA 402 “Audit Considerations relating to an Entity using a Service Organization", when obtaining an understanding of the user entity in accordance with SA 315, “Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and its Environment”, the user auditor shall obtain an understanding of how a user entity uses the services of a service organisation in the user entity's operations, including: (i) The nature of the services provided by the service organisation and the significance of those services to the user entity, including the effect thereof on the user entity's internal control; (ii) The nature and materiality of the transactions processed or accounts or financial reporting processes affected by the service organisation; (iii) The degree of interaction between the activities of the service organisation and those of the user entity; and (iv) The nature of the relationship between the user entity and the service organisation, including the relevant contractual terms for the activities undertaken by the service organization. Based on above, while conducting the audit, CA Harish will assess the effect on the audit risk and take necessary steps.