18. Using the work of others

Question 1

What is the function of internal audit function?

Answer 1

1. Monitoring of internal controls: Mgt performs test of controls to monitor and recommend improvements through report to directors.
2. Examination of financial and operating information: through inquiry and test of details
3. Laws and regulations: Review with laws and regulations.
4. Review of operating activities: If operations are conducting economically, efficiently and effectively.

Question 2

How can external auditor get help from internal auditor?

Answer 2

1. By using his work

2. By using him for direct assistance

Question 3

How would you evaluate whether you would use the work of internal auditor or not?

Answer 3

1. Level of competence of internal audit function
2. Whether the organizational status supports objectivity of internal auditor
3. Whether internal audit function applies Systematic and Disciplined approach.

Question 4

How to determine the nature and work of internal audit function that can be used?

Answer 4

Auditor shall consider the nature and scope of work and its relevance to audit strategy and audit plan.
The work shall not be used in areas involving significant judgement.
These work shall be used less when more judgement is involved or risk is high.

Question 5

How to check the adequacy of work of internal audit function?

Answer 5

1. Reperformance of work of internal auditor on sample basis.
2. Inquiry of internal auditor
3. Observation of procedures performed by internal auditor
4. Inspection of working papers of internal auditor

Question 6

What to evaluate when checking the adequacy of work of internal audit function?

Answer 6

Whether the work was properly planned, performed, supervised and documented, sufficient appropriate evidence was obtained, conclusions reached are appropriate and reports prepared by internal audit function are consistent with result of work performed, any exceptions which were properly solved.

Question 7

What to discuss with internal audit function?

Answer 7

Discuss and agree the following:
nature of work performed, 
timing of such work,
extent of audit coverage,
methods of item selection and sample sizes.

Question 8

What should be documented if use of internal auditor is to be used?

Answer 8

1. The evaluation of level of competence of internal audit function, whether the organizational status supports objectivity of internal audit function.
2. Nature and extent of work used.
3. Procedures performed by external auditor to evaluate the adequacy of work used.

Question 9

Define direct assistance?

Answer 9

Direct assistance is the use of internal auditors to perform audit procedures under the direction, supervision and review of external auditor.

Question 10

When should we not obtain direct assistance from internal auditor?

Answer 10

1. If prohibited by law or regulation
2. if there is significant threat to the objectivity of internal auditor
3. Internal auditor lacks sufficient competence.

Question 11

How to determine the nature and extent of work assigned to internal auditor?

Answer 11

1. assessed risk of material misstatement.
2. objectivity and level of competence of internal auditor
3. judgement involved in planning and performing procedures

Question 12

What are the auditors responsibilities if he uses internal auditor to provide direct assistance?

Answer 12

1. Obtain agreements from:
   authorized representative
   internal auditor.
2. External auditor shall direct, supervise and review the work of internal auditor to ensure that he has obtained sufficient appropriate evidence to support conclusions.

Question 13

What should we document if direct assistance is obtained?

Answer 13

1. evaluation of competence of internal auditors
2. basis for decisions regarding nature and extent of work
3. who and when was the work performed
4. written agreements
5. working papers

Question 14

Define expert and state the areas where an expert may be used?

Answer 14

An expert is an individual or an organization possessing expertise and experience in a field other than accounting or auditing.
Example:
valuation of assets, legal options, engineering data, IT expertise.

Question 15

How to evaluate competence, capabilities and objectivity of expert?

Answer 15

The auditor shall consider:
expert’s professional qualification
expert’s experience and reputation
independence of expert from client’s company.
This knowledge can be obtained from:
discussions with expert and with other auditors who are familiar with his work
personal experience with previous work of expert
information regarding expert’s qualifications etc.
published books and papers of that expert.

Question 16

Why is it important to obtain understanding of field work of expert?

Answer 16

1. determine nature, scope and objectives of that expert’s work
2. evaluate the adequacy of that work for auditor’s purposes.

Question 17

What are the terms on which the auditor and expert must agree on?

Answer 17

1. Nature scope and objectives of expert’s work
2. responsibilities of auditor and expert
3. form of expert’s report
4. confidentiality requirements.

Question 18

How to evaluate the adequacy of expert’s work?

Answer 18

1. accuracy, completeness and relevance of significant source data.
2. relevance and reasonableness of significant assumptions
3. reasonableness of expert’s findings.

Question 19

What if the expert’s work is not adequate?

Answer 19

The auditor shall:
agree additional work
perform additional audit procedures
If the work is still not adequate, it will be scope limitation and auditor shall express modified opinion.

Question 20

State about the reference of expert’s work in audit report?

Answer 20

Auditor shall NOT include the reference unless required by law or regulation and that such reference is relevant to explain nature of modification to auditor’s opinion.
The auditor shall need permission from the expert before making a reference. It is allowed in Key audit matter in the report.