chap18

Question 1

Comparison of Internal Auditors/Audit with External
Auditors/Audit:

Answer 1

Independence
Appointment
Qualification
Scope
Report to
Report Format

Question 2

Scope of Activities Internal auditor

Answer 2

1. Monitoring of internal control (performs TOC)
2. Examination of financial and operating
   information (performs TOD)
3. Review of compliance with laws and regulations
4. Review of operating activities (economically,
   efficiently and effectively).
5. Special investigations (e.g. suspected fraud)

Question 3

Competence:

Answer 3

q Qualification and experience.
q Knowledge and skills of financial reporting.
q Training and hiring process
q Adequate resources.

Question 4

Objectivity:

Answer 4

q Reportable to.
q Determination of scope..
q Conflicting responsibilities.
q Familiarity threat.
q HR decisions (hiring, firing, promotion).
q Restrictions.

Question 5

Approach

Answer 5

q Planning, Direction, Supervision, Review
q Documentation.
q Quality Control Standards

Question 6

Do NOT use work if

Answer 6

q Competence or Objectivity lacks.

Question 7

Use but less reliance if

Answer 7

q Area involves Risk and Judgment
q Less than serious concerns about competence
or objectivity.

Question 8

Work can be used in following areas

Answer 8

q Documentation of System.
q Risk assessment.
q Tests of Controls.
q Substantive procedures (with low judgment).
q Inventory counts.
q Compliance with laws.
q Trace transactions

Question 9

Evaluate Adequacy of Work

Answer 9

Evaluate:
q Work properly performed.
q Evidence obtained.
q Conclusions appropriate, and
consistent with work performed.
q Exceptions resolved.
Procedures to Evauate:
q Reperformance,
q inquiry,
q observation.
q inspection.
Extent depends on area and internal
auditor

Question 10

Discussion and Agree Matters with
Internal Auditor

Answer 10

q nature of work.
q timing.
q coverage.
q materiality.
q sample sizes and methods of
selection.
q documentation.
q review.

Question 11

Communication and Documentation/ use of work

Answer 11

Communication with TCWG:
q Planned use of work.
Documentation:
q The evaluation of Competence,
Objectivity, Approach.
q Nature and extent of work used.
q Procedures to evaluate adequacy

Question 12

Whether to obtain direct assistance

Answer 12

NOT if:
1. Prohibited by law.
2. Significant threats to competence or
objectivity.

Question 13

Which areas to obtain Direct Assistance

Answer 13

Consider:
q Risk and Judgment in area,
q Competence and Objectivity of internal auditor.
q Leve of Involvement of external auditor in audit.
NOT in following Areas:
q Higher risk and significant judgments.
q Risk of fraud.
q Unannounced audit procedures.
q Confirmation requests

Question 14

Auditor’s Responsibilities if he Uses Internal
Auditor to Provide Direct Assistance

Answer 14

Obtain Agreements:
q Authorized representative of the entity (NOC) and
q Internal auditors (to ensure confidentiality and objectivity).
Direction, Supervision and Review:
q To ensure sufficient appropriate evidence obtained.
q Different as compared to audit team member (considering risk
and judgment of area, competence and objectivity of internal auditor).
q checking back some of the work performed.

Question 15

Communication and Documentation
direct assistance

Answer 15

Communication with TCWG:
Nature and extent of planned use of internal
auditors to provide direct assistance.
Documentation:
q The evaluation of Competence, Objectivity.
q nature and extent of work.
q Who Reviewed, when.
q Written agreements.
q Working papers.

Question 16

Introduction to Expert

Answer 16

Areas where Expert may be used:
q Fair value of Assets and Liabilities (property, pension)
q Legal Cases, and Legal Requirements.
q Engineering data (machinery life)
q Tax issues.
q IT Expertise.

Question 17

Evaluate Competence, Capabilities and Objectivity of
Expert.

Answer 17

Factors to consider:
q Professional qualification
q Experience and reputation.
q Independence from client company.
Sources to obtain knowledge:
q Personal experience.
q Discussions with expert.
q Discussions with others familiar with expert.
q Information from relevant authorities.
q Published papers or books by expert.

Question 18

Obtain Understanding of Field of
Expert’s Work:

Answer 18

q To determine scope of work.
q To evaluate adequacy of work.

Question 19

Agree Terms of Engagement with Expert:

Answer 19

1. Nature, scope and objectives of work.
2. Responsibilities of auditor and expert.
3. Form of expert’s report.
4. Confidentiality requirements.

Question 20

Evaluate Appropriateness/Adequacy of Work
EXPERT

Answer 20

1. source data.
2. assumptions and methods.
3. findings and conclusions,
4. consistency with other audit evidence.

Question 21

If Expert’s Work is Not Adequate for Auditor’s Purpose:

Answer 21

q Agree additional work, or
q Perform additional procedures (e.g. hiring another expert), or
q Scope limitation (if still not adequate).

Question 22

Reference to Expert’s Work in Audit Report

Answer 22

Reference of expert only if:
q Required by Law, or
q Relevant to explain modified opinion.
q Key Audit Matter.
If reference included:
1. Obtain permission of expert.
2. Indicate reference does not reduce auditor’s responsibilities