International Standard of Auditing (ISA) 610 is established to ensure that external auditors use the work of auditors. It is rudimentary to have a specific basic principle to conduct an audit that can explain the guidelines to the external auditors where the auditors have prepared the work. ISA is given in two-fold within the scope of Internal controls.
Firstly, it encompasses internal auditors‘ work to obtain audit evidence. Secondly, it also includes using internal auditors to provide direct assistance under the external auditor’s direction, supervision, and review.
Usually, the external auditors discharging their responsibilities must decide the circumstances to use the internal audit to assist in measuring or identifying the number of steps the external auditor should work through.
In the same manner, internal auditors are also supposed to help external auditors to analyse if the work is covered within the scope and if the work conducted is adequate for the internal audit.
Standard Accounting 610 is not applicable when an internal auditor directly assists an external auditor with audit procedures. The applicability in legal & regulatory frameworks restricts accessing the auditor’s works.
The internal audit function in an entity and if there has any relevance to the external auditor’s work, then the external auditor should consider the following:
A. To determine the extent of the auditor’s work used in the audit.
B. The auditor work is adequate for the audit purpose
SA 610 using the work of Internal Auditors is adequate for auditing financial statements for periods commencing after 1st April 2010.
Internal Audit Function – “An appraisal activity provided as a service to the entity. The function includes evaluating, examining, and monitoring the adequacy and effectiveness of internal control.”
Aspects considered by the External Auditor
At the time using the work of an Auditor, the external auditor can determine if the work of the internal auditor is used for the purpose by ensuring audit evidence of several aspects of the audit department, which are given below:
Firstly, the auditor evaluates the extent to which the internal audit function is used within the organisation, the current status, and relevant policies and procedures supporting the auditor’s objectivity.
Similarly, the auditor is also supposed to evaluate the overall extent of competence of the audit function.
Lastly, the external auditors evaluate the internal audit function as an underlying disciplined and systematic approach reflected in the quality control procedures.
Conditions of the Internal Auditor work cannot be used :
- The external auditor is not supposed to use the internal auditor’s work when there is sufficient evidence to prove that the function’s organisational status and existing policies do not comply with the principles of objectivity.
- Similarly, the internal auditor’s work is used if the function has overall competence and a fundamental approach towards product quality control.
- Determining the extent and nature of the work of the audit function.
- To properly examine the extent and nature of work that the audit function can use.
The external auditor needs to understand the scope and nature of the auditor’s work to know if that would suffice to gather the necessary information for the subsequent audit process.
To use the work of the internal auditors, the external auditor
evaluates and performs audit procedures to determine adequacy and adequately supervise the document. It required sufficient evidence to reach a reasonable conclusion.
Further, it is also clarified that the external auditor should not rely only on the internal auditor’s work but also ensure that he can use his judgment to conduct the relevant audit procedures. Therefore, the work of internal auditors is utilised in several ways and cases.
Internal Controls have certain contingencies that need to be accounted for to ensure that auditors’ work does not compromise the audit’s final result, which would be misleading for the external stakeholders. Hence, several things should b borne in mind while ascertaining the extent to which internal audit work is utilised. Only after proper scrutiny by the auditor can use the work of internal auditors.
Additionally, it needs to be disclosed by the auditors that the work of internal auditors is utilised so that the users of the financial statements know the internal audit work.
Internal Controls- A Guide for directors
Internal Control System- Analysis of Benefits & Limitations
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