Reliance on the work of internal auditors
Obtaining an understanding of the activities of the internal audit function before relying on its workCSAE 3001 requires that the audit team makes inquiries regarding whether the audited entity has an internal audit function and, when it is the case, needs to obtain an understanding of the activities of the internal audit function (i.e. the objectivity of the internal auditors, the level of competence of the internal audit unit, and processes in place to ensure quality of the work conducted). This evaluation is done during the planning phase of the audit. Show
To evaluate whether the internal audit function’s organizational status and relevant policies and procedures support the objectivity of the internal auditors, the audit team may consider:
The audit team should also consider whether there are policies to maintain internal auditors’ objectivity, such as prohibiting internal auditors from auditing areas where they were recently assigned or where relatives are employed. [Exhibit—Text Version] To assess the level of competence of the internal audit function, the audit team needs to consider whether
To evaluate whether the internal audit function applies a systematic and disciplined approach, including quality control, the audit team may consider whether:
It is normally sufficient to perform an overall assessment of the internal audit function. If the audit team is satisfied that there are appropriate policies and procedures in place to assess the competence of internal auditors and there is adequate quality assurance over the completion of the working papers and reports in place to assess the due professional care of internal auditors, the team does not need to reassess these factors for each internal audit conducted. Evaluating the adequacy of the work of internal audit on the engagementOnce the audit team has obtained an understanding of the activities of the internal audit function, CSAE 3001 requires that the team assess whether the work of the internal audit function is adequate for the purposes of the engagement before planning to rely on it. To carry out an evaluation of the work of internal audit, the team needs to consider whether
When planning to evaluate and perform audit procedures on specific work of the internal audit function, the audit team is encouraged to have an agreement with internal audit to obtain the information necessary to complete this evaluation. Information that is likely to support the evaluation includes
Reporting considerations for special examinationsAuditors are required to include in the special examination report a statement on how far they relied or not on internal audits, as indicated in Section 139(2)(b) of the Financial Administration Act. The OAG special examination report template includes draft wording to satisfy this requirement. When planning to include a statement of reliance on internal audits, auditors should advise the head of the entity’s internal audit function. Why should external auditor rely on the work of internal auditor?With the knowledge of the internal auditors, the external auditor can gain additional insights into the entity. The external auditor can use internal auditors who may have relevant expertise in particular areas, and. The external audit team can focus on the more significant audit issues.
What is Reliance in audit?External auditors often rely on other professionals for the audit of the financial statements of their clients. Generally, external auditors rely on clients' internal auditors. Reliance on internal auditors results in cost savings to the client.
When can external auditors rely on the work performed by internal auditors?use work that has been performed by the internal audit function that is relevant to the period being audited to modify the nature or timing, or reduce the extent, of audit procedures to be performed directly by the external auditor (that is, the external auditor can use the work of the internal audit function in ...
What should external auditor consider before placing a reliance on internal auditors work?The findings of the study indicate that technical competence and scope of function are the two most important criteria that external auditors consider in their reliance on internal auditors.
|