Question

Due to recent changes in audit standards, external auditors are relying on internal audit functions more often. Please discuss ways that external auditors can assess the effectiveness of the internal audit function.

Answer 1

AS PER SA 610"USING THE WORK OF INTERNAL AUDITOR" INTERNAL AUDIT FUNCTION IS 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.

THE EXTERNAL AUDITOR SHALLDETERMINE WHETHER THE WORK OF THE INTERNAL AUDIT FUNCTION CAN BE USED FOR PURPOSES OF AUDIT BY EVALUATING THE FOLLOWING:

- THE LEVEL OF COMPETENCE OF THE INTERNAL AUDIT FUNCTION,

-WHETHER THE INTERNAL FUNCTION SUPPORT THE OBJECTIVITY OF THE INTERNAL AUDITOR.

THE EXTERNAL AUDITOR SHALLNOT USE THE WORK OF INTERNAL AUDIT FUNCTION IF

-THE FUNCTION LACKS SUFFICIENT COMPETENCE.

-THE FUNCTION DOES NOT SUPPORT THE OBJECTIVITY OF INTERNAL AUDITOR.

THE EXTERNAL AUDITOR SHALL READ THE REPORT OF INTERNAL AUDIT FUNCTION RELATING TO THE WORK OF THE FUNCTION THAT THE EXTERNAL AUDITOR PLANS TO USE TO OBTAIN AN UNDERSTANDING OF THE NATURE AND EXTENTS OF AUDIT PROCEDURES IT PERFORMED AND THE RELATED FINDINGS.

THE EXTERNAL AUDITOR SHALL ALSO EVALUATE WHETHER THE EXTERNAL AUDITOR'S CONCLUSION REGARDING THE INTERNAL AUDIT FUNCTION AND THE DETERINATION OF THE NATURE AND EXTENT OF USE OF THE WORK OF THE FUNCTION FOR PURPOSES OF THE AUDIT REMAIN APPROPRIATE.