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Explain the matters you would consider and the work you would perform to enable you assess the extent to which you would rely on the...

Explain the matters you would consider and the work you would perform to enable you assess the extent to which you would rely on the work of the internal audit department of your client

Answers

johnson
Before deciding whether to rely on the work of the internal audit function with the intention of reducing audit procedures the external auditor should evaluate the internal audit function to determine the scope of the function, its independence and hence how much reliance can be placed on the work that it carries out.
In evaluating this function the external auditor should consider the following factors:
-Organization status
Since internal audit function is part of the entity it cannot be totally independent. To boost it?s independence the status of the function within the organization should be such that the internal auditor reports to the highest level of management. The internal auditor should also be free of any other operating responsibility such as performing accounting functions, which may conflict with his role as an
independent watchdog of controls and operations of the entity. There should be no restrictions placed upon his work by management. Such restrictions could impair the effectiveness of the function.

- Scope of the function
The external auditor should ascertain the nature and depth of coverage of internal audit assignments. He should also ascertain whether management considers and acts upon internal audit recommendations. Where the recommendations are not acted upon this represents a weakness in the function and hence the level of reliance should consequently be reduced.

-Technical competence
The external auditor should ascertain whether internal audit work is performed by persons having adequate technical as auditors. Qualifications and experience of the internal audit staff should be considered.

-Due professional care
The external auditor should ascertain whether internal audit work appears to be properly planned, supervised, reviewed and documented. Exercise of due professional care is evidenced by the existence of adequate audit manuals, work programs and working papers.

-Internal audit reports
The external auditor should consider the quality of the internal audit reports prepared and submitted for management action. He should ascertain whether management considers, responds to and acts upon internal audit reports and whether there is evidence to prove that action.
- Level of resources available
The external auditor should consider whether internal audit has adequate resources to be able to carry out their duties effectively. Such resources would include staff and computer facilities.
After carrying out this assessment the external auditor will then decide whether the function is effective and the auditor can therefore rely on some of the work carried out by internal audit.
If the external auditor wishes to rely on some specific work carried out by internal audit the following factors should be considered:
a. The work is performed by staff who have adequate technical training and proficiency as internal auditors;
b. the work of assistants is properly supervised, reviewed and documented;
c. sufficient appropriate audit evidence is obtained to form a reasonable basis for the conclusions reached;
d. the conclusions reached are appropriate;
e. reports by the internal audit are consistent with the results of the work performed;
f. any exceptions and unusual matters disclosed by internal audit are properly resolved;
g. amendments to the external audit programme are required as a result of matters identified by the internal audit work;
h. there is a need to test the work of internal audit to confirm its adequacy.
johnson mwenjera answered the question on March 22, 2018 at 17:21

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