What does carve-out method mean on the CPA exam?
Carve-out method. Excludes a subservice organization's control objectives and controls from both the description and the scope of the service auditor's report. It leaves a gap the user entity has to close separately.
Defined against AT-C 320.08.
Which CPA exam sections use carve-out method?
Carve-out method appears in the AUD section of the CPA exam.
What is the difference between carve-out method and inclusive method?
Both describe how a service organization treats a SUBSERVICE organization in its SOC report. The carve-out method excludes the subservice organization’s controls from the description and the opinion, leaving the user auditor to obtain assurance separately. The inclusive method brings them inside both. Carve-out is far more common, and it is the one that leaves a gap the user entity has to close. (AT-C 320)
Other terms defined against AT-C 320
- inclusive method: Brings a subservice organization's controls inside the description and the scope of the service auditor's report, so one report covers both organizations.
- SOC 1 Type 1 report: A report on the fairness of the description and the suitability of the design of controls, at a point in time.
- SOC 1 Type 2 report: A report covering the description, the suitability of design, and the operating effectiveness of controls over a period.
- suitably designed: The controls, if they operated as described, would achieve the stated objective.
Related terms
- service organization: A third party whose processing affects a user entity's financial reporting, such as a payroll bureau or a claims processor.
- control objectives: What a set of controls is supposed to achieve, stated so that it can be tested.
- user auditor: The auditor of an entity that uses a service organization.
- equity method: Used when the investor can exercise significant influence, presumed at 20% or more of the voting stock.
- description of the system: Management's account of the service it provides and the controls around it.
- auditor's report: The document carrying the opinion, with its sections in a fixed order.