Assume that you are the audit senior conducting a review of the payroll system of a new auditee. While you are in the process of interviewing the payroll department manager, she makes the following statement: “We don’t need many controls since our payroll is done outside the company by Automated Data Processing, a service organization.”

Required:

Evaluate the payroll department manager’s statement and describe how a service organization affects an auditors’ review of controls. You may want to refer to Chapter 9.