Syllabus D. Audit of Historical Financial Information D4. Using the work of others

D4bc. Why Rely on Internal Audit? 2 / 8

Syllabus D4bc)

b) Evaluate the potential impact of an internal audit department on the planning and performance of the external audit.

c) Assess the appropriateness and sufficiency of the work of internal auditors and the extent to which reliance can be placed on it.

The external auditor must determine whether it is likely to be adequate for the purposes of the audit:

So we look at:

  • Whether the internal audit staff are sufficiently independent to retain objectivity

  • The qualifications and technical competence of the internal audit staff

  • The professionalism of the staff and the standing of internal audit within the organisation

  • Are internal audit constrained in any way by management?

If these considerations are fulfilled the auditor may assess the reliability of the work carried out by internal audit by ensuring:
  • Internal audit working papers are well documented and have been reviewed

  • Evidence gained by internal audit is sufficient and appropriate

  • Any conclusions drawn are reasonable and valid

  • Management have acted on recommendations made by internal audit

If all of the above is satisfied the auditor may choose to place reliance on some of the work of internal audit.

Remember that although they may use some of the work of internal audit as evidence, the responsibility for the final opinion will always lie with the external auditor.