Final answer:
When an audit client uses a service organization to manage their investment activity, it means that the client is outsourcing certain financial activities to another company. The service organization will handle tasks such as investment management, record-keeping, and reporting on behalf of the client.
Step-by-step explanation:
When an audit client uses a service organization to manage their investment activity, it means that the client is outsourcing certain financial activities to another company. This is common when the client wants to streamline their operations or lacks the expertise to handle certain tasks internally. The service organization will handle tasks such as investment management, record-keeping, and reporting on behalf of the client.
For example, let's say a company wants to invest in various stocks and bonds. Instead of managing the investments themselves, they hire a service organization that specializes in investment management. The service organization will handle the buying and selling of securities, monitoring market trends, and generating reports for the client.
By outsourcing investment activity to a service organization, the audit client can benefit from the specialized expertise and resources of the service organization. Additionally, it allows the client to focus on their core business activities while leaving the investment management to professionals.