Audit Short Notes - Chapter 4 Part 2

SA 610 “Using the work of Internal Auditors” under the direction, supervision and review of the external
Definition of Internal Audit Function auditor (“direct assistance”)
Internal audit function refers to Using internal auditor's work does not require external auditor to
●​ a function of an entity that modify nature, extent and timing of audit procedures to be
●​ performs assurance and consulting activities designed performed It remains the decision of the auditor
●​ to evaluate and improve the effectiveness of the
●​ entity’s governance, risk management and internal control External Auditor's Responsibility for the Audit

●​ Sole Responsibility: The external auditor alone is responsible

processes
for the audit opinion and this responsibility is not reduced by
Objectives and scope of internal audit functions using the internal audit function or direct.
Same as given in the definition. ●​ Internal auditors are not independent as required by sa 200.
●​ Work of an internal auditor can be used but only subject to the
Activities Related to Governance
conditions specified in sA 610.
Assess Governance Process & its Accomplishment of objectives​
on Ethics, Values, Accountability, communicating risk to appropriate
areas of the organization

Activities Related to Risk Management

Assist by identifying & assessing Risk

Improving Risk Mgt & IC​

Activities Related to IC

Evaluation of IC

Review — Control​
Evaluate — Operation
Recommend — Improvement​

Examination of Fin. & operation info

How Entity identify, recognize, measure, classify, and report its

financial and operational data​

Review of operating Activities

Review economy, efficiency and effectiveness of activities​

Review of compliance with L/R

Review compliance with law and regulation and with management

policies

Ways in which the external auditor may make use of the internal

audit function

Risk Assessment
●​ Gather information relevant to evaluating risks of material
misstatement.
Using the work of the internal audit function in obtaining audit
evidence
●​ Consider internal audit's work as part of audit evidence.
following legal and regulatory guidelines.
Direct Assistance
●​ Unless prohibited, or restricted by law or regulation, external
auditor may use internal auditors to perform audit procedures

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 Audit Short Notes - Chapter 4 Part 2

●​ Whether internal auditors possess required knowledge relating

to the entity’s financial reporting and AFRF

Application of a Systematic and Disciplined Approach

Meaning

Internal audit's systematic, disciplined approach to planning,

performing, supervising, reviewing, and documenting activities sets
it apart from other monitoring controls within the entity
Objectivity and its evaluation
Factors that may affect the external auditor’s determination of
Meaning

Objectivity refers to the ability to perform those tasks without whether the internal audit function applies a systematic and

allowing bias, conflict of interest or undue influence of others to

disciplined approach

●​ Existence, adequacy, and use of documented

override professional judgments.
procedures/guidance (risk assessment, work programs,
Factors that may affect the external auditor’s evaluation in relation documentation, reporting) commensurate with entity size and
to Objectivity circumstances.
●​ Whether the organizational status of the internal audit function ●​ Whether the internal audit function has appropriate quality
supports the ability of the function to be free from bias, control policies and procedures.
conflict of interest or undue influence of others to override
professional judgments. Circumstances When Work of the Internal Audit Function Cannot Be

○​ For example, whether internal audit function reports to Used

TCWG The external auditor shall not use the work of the internal audit
function if he determines that:
●​ Whether TCWG oversees employment decisions related to the
●​ The function’s organizational status and relevant policies and
internal audit function.
procedures do not adequately support the objectivity of
○​ For example, determining the appropriate remuneration
internal auditors;
policy.
●​ The function lacks sufficient competence; or
●​ Whether there are any constraints placed on the internal audit
●​ The function does not apply a systematic and disciplined
function by MGT or TCWG
approach, including quality control.
○​ For example, communicating internal audit function’s
findings to external auditor.
DPQ - PQR & Co., Chartered Accountants, has been appointed as statutory
●​ Whether internal audit function is free of any conflicting auditor of MGM Ltd. The financial statements of the company have material

responsibilities, amounts outstanding as debtors. Ageing of debtors is being done by the

○​ For example, having managerial duties or responsibilities internal auditors and is given by them in their monthly report. This issue

that are outside of the internal audit function. was also discussed with the management. The engagement partner from

PQR & Co. decided to give the age wise debtors as per the report of the

internal auditor due to shortage of time. After the audit report was
Competence and its evaluation
released, the engagement partner realized that the disclosure of the
Meaning
debtors is misleading and the ageing was not done by the internal auditor on
Competence of the internal audit function refers to the attainment correct principles due to which the provision made against old debtors was

and maintenance of knowledge and skills of the function as a whole at wrong. The engagement partner held the internal auditor responsible for

the level required to enable assigned tasks to be performed this. Is he correct in making the statement that the internal auditor is

diligently and in accordance with applicable professional standards. responsible for false provisioning? What considerations PQR & Co. should

have undertaken before relying on the work of the internal auditor?

Factors that may affect the external auditor’s determination in

relation to competence

●​ Whether the internal audit function is adequately and

appropriately resourced relative to the size of the entity and
the nature of its operations.
●​ Whether there are established policies for hiring, training and
assigning internal auditors
●​ Whether internal auditors have adequate technical training and
proficiency in auditing.

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