ISA 610 - USING THE WORK OF INTERNAL AUDITORS (IA)

Question 1

ISA 610

USING THE WORK OF INTERNAL AUDITORS (IA)

Direct ASSISTANCE

Answer 1

Direct ASSISTANCE (this word can be used in the Q) is the external audit team using IA team members to perform audit procedures under the direction, supervision & review of the external auditor.

NOTE: Even though IA may work under the direction, supervision & review of the EA, IA is still not considered as the audit engagement team. [ISA 220 (R)]

1/ In certain jurisdictions, the EA MAY BE PROHIBITED by law or regulation from obtaining direct assistance from IA.

2/ IF NOT PROHIBTED BY LAW OR REGULATION…
EA shall NOT use an IA to provide direct assistance if:

C - (Competence) The IA lacks sufficient competence to perform the proposed work.
C - N/A (Capability not an issue)
O - (Objectivity) There are significant threats to the objectivity of the IA

3/ The EA shall NOT use IA to provide direct assistance to perform procedures that:
− Involve making significant judgments in the audit.
− FS items which have a high ROMM.
− Areas already audited by IA & reported (or will be reported) to TCWG.

CCO (related to ISQM 1)

Question 2

ISA 610

USING THE WORK OF INTERNAL AUDITORS (IA) - Type of work USUALLY done by IA

Direct ASSISTANCE

Answer 2

• Review the accounting systems & related internal controls (including IT systems review) - relevant to EA
• Examine financial & operating information for management, including detailed testing of transactions & balances (not related to IFRS)
• Review of Economy, Efficiency & Effectiveness of operations ( i.e. Value For Money audits) & the functioning of non-financial controls ( eg controls to deal with *business risk *) - not relevatn to EA
• Review of implementation of corporate policies, plans & procedures
• Special investigations - (including fraud investigations, mystery shopper reviews & regulatory compliance reviews)

Question 3

ISA 610

USING THE WORK OF INTERNAL AUDITORS (IA) - Evaluating & Testing SPECIFIC WORK of IA for use as PARTIAL SUBSTITUTION

Direct ASSISTANCE

Answer 3

The EA to consider whether:

P- Persons doing the work have adequate technical training & proficiency as internal auditors & the work of assistants is properly supervised, reviewed & documented.

A - Sufficient Appropriate audit evidence is obtained to afford a reasonable basis for the conclusions reached.

C - Conclusions reached are appropriate in the circumstances & any reports prepared are consistent with the results of the work performed.

E - Any Exceptions or unusual matters disclosed by internal auditing are properly resolved.

R - Re-test some of the same transactions tested by IA to see whether EA gets the same test results. NOTE: EA should not rely entirely on the IA’s work & should TEST SOME of the items in the population on his own.

PACER

Question 4

ISA 610

ISA 610
USING THE WORK OF INTERNAL AUDITORS (IA)

Indirect ASSISTANCE

Answer 4

• The EA shall prevent undue use of the work of the IA function, shall plan to use less of the work of the function and perform more of the work directly.
• EA shall communicate with TCWG on how the EA has planned to use the work of the IA function.
• Relying in internal audit work will result in a saving in external audit time & thus allow for a reduction in the external auditor’s fees.

Indirect assistance is not prohibited, however, the EA shall evaluate the reliability of IA

D - Due professional care - (whether IA work is properly planned, supervised, reviewed & documented, whether it applies a systematic & disciplined approach [including quality control])

O - Organisational status - (Whether IAs are independent of other departments & report to the Audit Committee)
T - Technical competence - (whether IA work is performed by persons having adequate technical training & is professionally qualified)

S - Scope of function - (Whether the nature of IA assignments performed is actually suitable for the external audit.)

Question 5

ISA 610

AREAS of Indirect ASSISTANCE

AT INTERIM

Answer 5

AT INTERIM
Risk assessment

− Use IA work to assess the business risks (i.e. FBI) that may threaten the survival of client’s business.
− Use IA work to assess the risk of fraud & of NOCLAR. (To help auditor identify ROMM due to fraud & NOCLAR)

Internal Controls

− Use system notes drawn up by IA. The accuracy of the system notes should be ascertained by carrying out walk-throughs.
− Use IAs assessment of internal controls.
− Use IAs results of audit tests as a PARTIAL substitution for the audit evidence. Then the EA can test a smaller sample. However, the external auditor must first assess reliability of SPECIFIC WORK of IA (See PACER )
− Use of IAs reports of branch visits. The IAs can be very helpful to the EA when the company has a number of branches (e.g., supermarkets, banks & hotels). Branch visit reports can provide evidence of the quality of the accounting records at branches, & thus, a more reliable estimate of control risk relating to branches.

Question 6

ISA 610

AREAS of Indirect ASSISTANCE

AT FINAL

Answer 6

AT FINAL
Making use of IAs substantive tests.
− Problem is that IAs tend to carry out fewer tests on items in the FS than on checking controls in accounting systems. So, in this area the EA will place less reliance on the IAs’ work.

− Making use of IAs attendance at inventory & cash counts. With the assistance of IAs, the year-end inventory can be checked at more branches than if this work was carried out entirely by the EA. Same goes with cash counts