ACCA Advanced Audit and Assurance (AAA) Practice Exam

What is a user entity in the context of auditing?

1. An entity that uses a service organization

2. An auditing firm providing services

3. An organization that hosts external audits

4. A regulatory body overseeing audits

The correct answer is: An entity that uses a service organization

In the context of auditing, a user entity refers specifically to an entity that utilizes the services of a service organization. Service organizations provide various functions or services that support user entities, such as data processing, payroll, or cloud storage services. By employing these organizations, user entities rely on them for critical aspects of their operations while also requiring assurance regarding the effectiveness of controls in place at the service organization. This definition is fundamental for auditors as it highlights the relationship between user entities and service organizations. Auditors need to evaluate the risk associated with these arrangements and ensure that the user entity has adequately addressed that risk when relying on the services provided. Understanding the role of a user entity is essential in the audit process, particularly when considering the implications of third-party services on the financial statements or internal controls of the user entity. The other concepts, such as an auditing firm or a regulatory body, refer to different roles within the broader auditing ecosystem and do not encapsulate the relationship centered on user entities and service organizations.