Using the Work of an Internal Audit Function

Question 1

Internal Audit function

Answer 1

a function of an entity that performs assurance and consulting activities designed to evaluate and improve the effectiveness of the entity’s governance, risk management, and internal control processes

Question 2

The external auditor may use the internal audit function

Answer 2

1) To obtain audit evidence

2) To provide direct assistance

Question 3

Using the internal audit function to obtain audit evidence

External auditor should verify 3 requirements

Answer 3

1) Objectivity
2) Competence
3) Systematic and disciplined approach

Question 4

Objectivity

Answer 4

The internal audit function’s organizational status (dealing with the level to whom the function reports, such as those charged with governance, rather than middle management) and relevant policies and procedures must support the objectivity of the internal auditors.

Question 5

Competence

Answer 5

The internal auditors must be competent (related to their education, experience, certification, etc.) to perform reliable work.

Question 6

Systematic and disciplined approach

Answer 6

The internal audit function must apply a “systematic and disciplined approach, including quality control.” The external auditor should not rely on “internal audit–like” work that is conducted in an informal, unstructured, or ad hoc way. However, the degree of formality and structure may vary with the nature, size, and complexity of the entity involved.

Question 7

Verification procedures that the auditor should perform

Answer 7

1) Read the internal audit function report related to the planned use
2) Perform procedures to evaluate I/A’s planning, performing, review and documentation whether the conclusions reached are appropriate in the circumstances
3) Reperform some of the I/A’s work that is to be used

Question 8

Using the internal audit function to provide direct assistance

External auditors should verify these two requirements

Answer 8

1) Objectivity

2) Competence

Question 9

Documentation requirement

When using the internal audit function to obtain audit evidence, the external auditor should document the following:

Answer 9

1) The evaluation of the internal audit function’s organizational status and objectivity of the internal auditors, the function’s competence, and the application of a systematic and disciplined approach;
2) The nature and extent of the work used and the basis for that decision; and
3) The external auditor’s procedures performed to evaluate the work of the internal audit function.

Question 10

When using the internal audit function to provide direct assistance—the external auditor should document the following:

Answer 10

1) The evaluation of the internal audit function’s organizational status and objectivity of the internal auditors and the function’s competence;
2) The basis for the external auditor’s decision about the nature and extent of the work performed by the internal auditors; and
3) Identification of the working papers prepared by the internal auditors, and the nature and extent of the external auditor’s review and testing of the internal auditors’ work.