ISA
610 explains the relationship between internal audit function
and the external auditor. Internal audit function is an appraisal activity
established or provided as a service to the entity. Its functions include,
amongst other things, examining, evaluating and monitoring the adequacy and
effectiveness of internal control.
Preliminary
assessment of the internal audit function
When
it appears that internal audit is relevant to the external audit of the
financial statements in specific audit areas, we make a preliminary assessment
of internal audit by obtaining information about matters such as:
- the objectivity of internal audit function i.e. status and reporting of internal audit function in the entity
- the due professional care of internal audit, especially whether the work is adequately planned, supervised and reviewed
- the technical competence of the internal audit function
- whether management acts on internal audit's reports and recommendations and how this is evidenced
Evaluate
and test the work of internal audit
When
we intend to use specific work of internal audit, we evaluate and test that
work to confirm its adequacy for our purposes.
For
evaluation,
we check that:
- the work is performed by persons with adequate technical training and proficiency.
- the work of assistants is properly planned, supervised, reviewed and documented.
- sufficient appropriate audit evidence is obtained to afford a reasonable basis for the conclusions reached.
- conclusions are appropriate in the circumstances and reports are consistent with the results of the work performed.
- any exceptions or unusual matters disclosed by internal audit are properly resolved by management.
For testing, we may perform any of the
procedures below relating to testing of internal audit that may be considered given specific client circumstances. Our
tests of the internal audit
function's work may include the following procedures.
- Observe the internal audit function perform audit procedures.
- Re-perform some of the audit procedures previously performed by the internal audit function.
- Perform different audit procedures. For example, we may test controls, transactions or balances other than those the internal audit function tested.
- Examine internal audit's working papers.
Practice
Remember
that the external auditor has sole responsibility for the audit opinion
expressed, and that responsibility is not reduced by the external auditor's use
of the work of the internal auditors. Evaluating the internal audit
function becomes relevant only when the external auditor has determined, in
accordance with ISA
315, that the internal audit function is likely to be relevant to the
audit. The internal audit function is considered relevant when the nature of
the internal audit function's responsibilities and activities are related to
the entity's financial reporting, and the auditor expects to use the work of
the internal auditors to modify the nature or timing, or reduce the extent, of
audit procedures to be performed.
