Using the work of an Internal Audit Function

Question 1

Define internal audit:

Answer 1

A function of an entity that performs assurance and consulting activities DESIGNED to EVALUATE AND IMPROVE the

EFFECTIVENESS OF THE ENTITY’S GOVERNANCE
RISK MANAGEMENT
AND INTERNAL CONTROL PROCESSES

Question 2

When would an EXTERNAL AUDITOR use INTERNAL AUDIT Function?

Answer 2

1) To obtain audit evidence- Substitute the Internal Auditors work that external auditor would otherwise perform (tests of controls and/or substantive procedures)
2) Provide direct assistance- Use internal auditor to perform procedures subject to the external auditor’s direction, supervision, and review

Question 3

When using an internal auditor to OBTAIN AUDIT EVIDENCE, the external auditor should verify three requirements:

Answer 3

1) Objectivity- Regarding the IAs organizational status and policies to support internal audits objectivity (If they report to those in charge with governance, that is a good thing which gives them objectivity)
2) Competence- The internal auditors must be competent (level of education, experience, certification, etc) to perform reliable work
3) Systematic and disciplined approach- They should use a formal, strutted approach, and quality control over their work

Question 4

When using to obtain audit evidence, there should be verification procedures, these include:

Answer 4

1) . Read the Internal Audit report and planned use of report
2) Perform procedures to evaluate internal auditors planning, performance, and review and documentation and whether the conclusion is appropriate
3) Reperform some of the internal auditors work

Remember: The external auditors should perform all significant audit judgements

Question 5

When using a internal auditor to PROVIDE DIRECT ASSISTANCE, the external auditor should verify three requirements:

Answer 5

1) Objectivity- Organizations status and Policies and procedures to support internal auditors objectivity
2) Competence- Must be competent education, experience, certifications they hold

Question 6

When using an internal auditors, the external auditors should follow certain procedures:

Answer 6

1) Obtain written acknowledgement
2) Appropriately direct, supervise, and review the Ins work
3) Test some of the work performed by the internal auditor

Question 7

What are the documentation requirements that professional standards require for using internal auditors:

Answer 7

1) The evaluation of internal audit organizational status and objectivity of the internal auditors, functions of competence, and application of systematic and disciplined approach
2) The nature and extent of the work used and the basis for that decision
3) External auditors procedures performed to evaluate the internal audit function

Question 8

Should the external auditors reference the use or involvement of internal auditors in their final report?

Answer 8

NO!!! They should NOT report the involvement of an internal auditor

There is no division of responsibility, the external auditor remains 100% responsible for conclusions reach