Can internal auditors be used to provide direct assistance to the external auditor for purposes of audit? Relevant to ACCA Qualification Papers F8 and P7
International Standard on Auditing (ISA) 610, Using the Work of Internal Auditors has been revised and published in 2013. This standard focuses on whether the external auditor can use the work of the internal audit function for purposes of audit, and the revised version of the standard, clarifies whether the internal auditors can be used to provide direct assistance to the external auditor. The material pertaining to direct assistance is effective for audits of financial statements for periods ended on or after 15 December 2014. Candidates taking Papers F8 and P7 should familiarise themselves with this revision to the standard as they are expected to be able to discuss the extent to which external auditors are able to rely on the work of internal auditors (section D6(c) of the Paper F8Study Guide) and to assess the appropriateness and sufficiency of the work of internal auditors as well as the extent to which reliance can be placed on it (section D2(h) of the Paper P7 Study Guide).
EXTERNAL AND INTERNAL AUDITORS
Much of the work performed by a company’s internal audit function can overlap with the work conducted by the external auditor, specifically in areas dealing with the assessment of control processes. It is likely that in carrying out detailed work evaluating and reviewing the company’s internal control framework internal audit perform procedures on financial controls relevant to the external audit. As such, the external auditor, rather than duplicating these procedures, may be able to place reliance on the work carried out by the internal auditor. The International Standards On Auditing (ISAs) now highlight three ways in which internal auditors may be utilised by the external auditor in the audit of financial statements:
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This article focuses on the provision of direct assistance by the internal auditors, which – to date – has been a very controversial issue. Internal auditors are the employees of the entity, which could result in threats to independence (either in fact or perceived) if direct assistance is provided by the internal auditors. On the other hand, the following benefits relating to provision of direct assistance by the internal auditors cannot be ignored: There will be a strengthened relationship between the external and internal auditors through a more effective dialogue With the knowledge of the internal auditors, the external auditor can gain additional insights into the entity The external auditor can use internal auditors who may have relevant expertise in particular areas, and The external audit team can focus on the more significant audit issues.
The IAASB released ISA 610 (Revised 2013), which includes new requirements and guidance addressing the external auditor’s use of internal auditors to provide direct assistance. Where such use is not prohibited by law or regulation, the ISA provides a robust framework to ensure that direct assistance is obtained only in appropriate circumstances, that the external auditor considers the relevant limitations and safeguards, and that the auditor’s responsibilities are clearly set out. GUIDANCE ON DETERMINING IF IT IS APPROPRIATE FOR INTERNAL AUDITORS TO PROVIDE DIRECT ASSISTANCE WHEN CAN INTERNAL AUDITORS BE USED TO PROVIDE DIRECT ASSISTANCE? The external auditor, in the course of discharging their responsibilities must decide if it is appropriate in the circumstances to use internal audit to provide direct assistance. The ISA identifies a number of steps that the external auditor should work through when determining to what extent, if any, direct assistance can be provided.
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Step 1: Prohibition by law or regulation
The external auditor may be prohibited by law or regulation from obtaining direct assistance from internal auditors; therefore, the...
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