Question

Describe opportunities for the internal audit function to provide insight on effective internal control?

Answer 1

Internal Audit Function – “An appraisal activity established or provided as a service to the entity. Its function includes, amongst other things, examining, evaluating and monitoring the adequacy and effectiveness of internal control”

· Evaluation of internal control. The internal audit function may be assigned specific responsibility for reviewing controls, evaluating their operation and recommending improvements thereto. The internal audit function provides assurance on the control to management and those charged with governance regarding the design, implementation and operating effectiveness of internal control, including those controls that are relevant to the audit.

· Examination of financial and operating information. The internal audit function may be assigned to review the means used to identify, recognize, measure, classify and report financial and operating information, and to make specific inquiry into individual items, including detailed testing of transactions, balances and procedures.

· Review of operating activities. The internal audit function may be assigned to review the economy, efficiency and effectiveness of operating activities, including nonfinancial activities of an entity

· Review of compliance with laws and regulations. The internal audit function may be assigned to review compliance with laws, regulations and other external requirements, and with management policies and directives and other internal requirements

If an entity has an internal audit function and its relevance to the external auditor’s work, then the external auditor should determine:

A. If the specific work of the internal auditor can be used and if so, to what extent.

B. Such work is adequate for the audit purpose.