Question

When can external auditors rely on the work performed by internal auditors? 

Answer 1

The independence and competence of the internal audit staff determine the extent to which external auditors may cooperate with and rely on work performed by internal auditors. Some internal audit departments report directly to the controller. Under this arrangement, the internal auditor’s independence is compromised, and the external auditor is prohibited by professional standards from relying on evidence provided by the internal auditors. In contrast, external auditors can rely in part on evidence gathered by internal audit departments that are organizationally independent and report to the board of directors’ audit committee. A truly independent internal audit staff adds value to the audit process. For example, internal auditors can gather audit evidence throughout a fiscal period, which external auditors may then use at year end to conduct more efficient, less disruptive, and less costly audits of the organization’s financial statements.