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Explain on external auditor’s reliance on work of internal auditor

Explain on external auditor’s reliance on work of internal auditor

Answers

Wilfred
Before deciding on whether to rely on work of 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 the extent to which its work can be relied on. In
evaluating internal audit function, the external auditor considers the following factors:
• Organization status. Since internal audit function is part of the entity, it cannot be totally
independent. To aid in its independence, the internal audit function should report to the
highest level of management. The internal auditor should also be free from duties such as
accounting functions which may bring about conflict of interest. The internal auditor should
not have any restrictions upon him or her from management which could impair effectiveness
of doing his or her work.
• Scope of the function. The external auditor should ascertain the nature and depth of coverage
of internal audit assignments. Also to be considered are the management actions on the
recommendations of internal auditor. In case the management does not follow up on the
recommendations, the external auditor must reduce his reliance on work of internal audit
function as this means it is weak.
• Technical competence. The external auditor should assess the competence experience,
qualifications, technical training and proficiency of the staff members in the internal audit
function.
• Due professional care. The external auditor should ascertain whether due professional care
has been observed in doing the work of the internal audit function e.g. whether there were
work plans, supervision and documentation of audit evidence in executing internal audit
functions.
• Availability of resources. The external auditor should consider whether the internal audit
function has adequate resources to enable it carry out its functions as expected e.g. adequate
staff and time.
Wilfykil answered the question on April 11, 2019 at 06:52

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