internal auditors work Flashcards
why do we use internal auditor’s work
some work may already have been performed by them
specially assessment of control processes
rather than duplicating the work we may rely on it
threat of using IA work
employees
independence threat
benefits of using IA work
-strengthened relationship between IA and EA
-IA has knowledge, additional insights
-relevant expertise
-audit team can focus on more significant audit issues
ISA steps to determine if IA work can be used
1) is it prohibited by law?
in UK direct assistance is prohibited to maintain independence
2) evaluate existence and significance of threats to objectivity of IA
3)evaluate competence
how to evaluate IA threats to objectivity
-extent to which the organisation supports their objectivity
-any family and personal relationships
-association with the department being audited
-any financial interests other than normal salary paid to other dept employees
examples that IA is objective
-reports to TCWG
-no managerial or operational duties
-IA are members of relevant professional body, obiged to follow standards
how do we know if IA is competent
the IA function operates at the level required to:
-tasks performed diligently
and
in accordance with the standards
also:
-policies for hiring, training and assigning
-certifications and experience
-IA knowledge of financial reporting and FR framework
-whether they have necessary skills to perform the work
how to determine the nature and extent of work that can be assigned to internal auditors
-requires professional judgement
-extensive use of direct assistance could impact perception of auditor independence
consider:
-extent of IA organisational status that supports objectivity +their competence (already judged beforhand)
-amount of judgement needed
-assessed risk of MM
the greater the level of judgement required, the narrower the scope of work that can be assigned to IA
the higher the risk of MM, lesser work given to IA
what activities involve significant judgement?
-assessing risk of MM
-evaluating sufficiency of tests performed
-evaluating significant accounting estimates
-evaluating adequacy of disclosures in FS and other matters afecting auditors report
what procedures cannot be performed by IA?
-significant judgement required
-higher assessed risk of MM
-relate to decisions about whether IA can assist or not
-work in which IA has been involved and already reported or will be reported to management
also dont involve them in:
-discussion of fraud risks
-deciding unannouced/ unpredictable audit procedures
-external confirmations and their evaluation
responsibilities of auditor when using work of EA
-after determining the use of IA to provide direct assistance:
1) communicate nature and extent of work with TCWG to reach a mutual understanding that use is not excessive
-evaluate if external auditor is still sufficiently involved in audit
2)before use of IA for direct assistance:
get written agreement from:
-authorised representative of the entity, saying that IA will be allowed to follow EA instructions, and entity will not intervene in IA work
-Internal auditors, they will keep confidential specific matters, and inform EA of any threat to objectivity
3) during audit:
-EA will direct, supervise and review work performed as IA are not independent of entity
-remind IA to bring any accounting and auditing issues to our attention
-for some work check back on evidence
-ensure SAE is available to support conclusions
4) document evidence
documentation requirement regarding using IA work
document the following in owkring papers:
-evaluation of existence and significance of the threats to objectivity, and of competence
-basis for the decision of nature extent of work given
-who reivewed the work, and date and extent of review
-written agreements from an authorised representative of entity and internal auditors
-working papers prepared by IA providing direct assistance
TLDR
external auditor shud be sufficiently involved in the audit, as external auditor has the sole responsibility for the audit opinion expressed
