What factors should the external auditor consider before placing any reliance on the work of an internal auditor?

The internal auditor‟s qualifications. He should be a qualified end experienced accountant with experience in an auditing environment.
Past experience. If the external auditor has had some prior relationship with the internal auditor, he is in a good position to assess the degree of reliance on the latter‘s work.
Internal auditor’s independence. The external auditor should first ascertain whether the internal auditor did his work independent of management or perhaps his duties were compromised by pressure from management.
Conflict of interest. If the internal auditor has some stake in the company‘s shares,then he may not be in a position to provide the external auditor with reliable, unbiased information.
Duration of service. The external auditor should ascertain the duration the internal auditor has worked for the client company. If he has worked for long, he will be in a better position to provide relevant and reliable information to the external auditor.

Inhaltsverzeichnis Show

Post navigation
What should external auditors consider when deciding whether to rely on the work of internal auditors?
What factors do external auditors generally consider before determining whether the work of the internal audit function can be relied upon for the purposes of the audit?
What are the areas that need to be considered by external auditor before reliance can be placed on internal auditors work?
What are the factors to consider before implementing an internal audit function?

External auditors' reliance on work performed by internal audit function: Meeting the requirements of the External Audit function represented by the public accounting firm

This document has been prepared to be used as a guideline for the entities that have an Internal Audit function and intend to increase the efficiency of their audits by having the work performed internally leveraged by their External Audit engagement teams.

Why - If there is a spotlight on improving the efficiency of the audit-related processes, having External Auditors place (place more) reliance on the work performed internally will significantly lower the costs associated with the regulatory compliance attestation efforts.

How much reliance can be placed - up to 100% reliance on Internal Audit’s work for non-public clients and 50-70% is what we normally see for public clients.

The extent of the reliance external auditors can place on the work performed by others is determined by:

Competency of the Internal Audit function
Objectivity of the Internal Audit function
Adequacy of the audit scope
Period of audit coverage
Quality of the deliverables
Timing of the deliverables

COMPETENCY OF THE INTERNAL AUDIT FUNCTION
As part of the assessment of the competency of the internal audit function, external auditors evaluate the existence and quality of such factors as listed below:

Education and professional experience of the internal auditors, including professional certification and continuing education:

Inquiries might be made regarding professional certification and continuing education standards for the department
Copies of the resumes for everyone involved with the audit are normally requested by the External Auditors

Supervision and review of the internal auditors' activities:

External Auditors will need to understand who is responsible for managing the auditors’ day-to-day activities and addressing any issues;
What procedures are being performed to ensure that the recommendations issued by the Internal Audit are being implemented?
How recommendations for correction are reported to the management, and such.

OBJECTIVITY OF THE INTERNAL AUDIT FUNCTION:
As part of the assessment of the objectivity of the internal audit function, external auditors evaluate the existence and quality of such factors as listed below:

Organizational status of the internal auditor responsible for the internal audit function:

Does the Internal Audit department have sufficient visibility with upper management (i.e. reports to someone with sufficient status to achieve adequate consideration of the findings and recommendations reported by internal auditors)?
Does the Internal Audit function reports regularly to those charged with governance?
Are the decisions related to the Internal Auditor who performed the work sufficiently overseen by those charged with governance?
Does the Internal Audit function have a direct reporting relationship to the audit committee? How limited is this relationship beyond the scheduled board meetings?

Note: There is more emphasis now on a sufficient level of independent corporate governance and seeing audit committees act as more independent, effective managers of a company's external and internal auditors.

Policies/procedures to maintain the internal auditors' objectivity:

Internal Auditor(s) performing the work should be prohibited from auditing areas in which the Internal Auditor was recently assigned or is scheduled to be assigned upon completion of his/her responsibilities in the internal audit function;
The Internal Auditor performing the work should also be prohibited from auditing areas in which relatives are employed in important or audit-sensitive positions.

Note: Internal audit should play a very significant but advisory role in the compliance project.

ADEQUACY OF THE AUDIT SCOPE:

As part of the assessment of the adequacy of the scope defined by the Internal Audit function, external auditors evaluate factors listed below:

The extent of the work performed by the Internal Audit function:

Is there an audit plan that outlines the work performed by the Internal Audit function, including the nature and the extent of audit procedures?
Have significant areas of organization operations with coverage over all significant business units been identified?
How did organization identify key internal control processes that are financially significant (e.g., criticality analysis, etc.)?
Have the compliance to control procedures been tested and the results documented for all key internal control processes or are there areas not covered by the internal audit function?
Does the Internal Audit function have adequate access to the entity’s records and whether there are limitations on the scope of the internal audit function’s activities?

Relevance of the activities performed by the Internal Audit function to the audit procedures in scope for External Auditors:

How well the scope of the work performed by the Internal Audit function is aligned with the scope of the procedures to be performed by the External Auditors?
Which of the activities performed by the Internal Audit function are relevant to the audit procedures in scope for External Auditors?
Are there areas in scope for External Auditors not covered by the Internal Audit function?

Note: The External Audit function represented by the public accounting firm will have their set of criteria to determine any significant areas of organization operations/ key internal control processes. If organization intends to increase the efficiency of the audit by having the work performed by the Internal Audit function leveraged by the External Audit engagement teams, it is essential to work with External Auditor to ensure you agree with their scoping and cover the same areas internally.

PERIOD OF AUDIT COVERAGE:

External Audit engagement team will have to ensure that the period/timeframe assessed by the Internal Audit’s testing procedures is adequately aligned with the period under review:

Relevance of coverage performed by the Internal Audit function to the audit procedures in scope for External Auditors:

External auditors will need to gain assurance that controls operated effectively over a certain period of time (i.e., for financial statements audit external auditors must attest to the quality of the organization’s internal controls over the fiscal year).
As such, inquiries will be made regarding how much of the period under review is covered by the Internal Audit’s procedures: have the compliance to control procedures been tested, the results documented, and the opinion issued for all key internal control processes over the whole fiscal year under review or are there limitations to the coverage of the internal audit activities?
Any portion of the period under review not covered by internal audit will be a subject to an independent assessment by the External Audit function.
It is recommended to discuss the period under review with external auditors prior to finalizing the scoping of any internal procedures to ensure Internal Audit covers sufficient timeframe.

QUALITY AND TIMING OF THE DELIVERABLES
Lastly, the quality of the working papers prepared by the Internal Audit function and the timing of the deliverables must meet the requirements of the External Auditors:

Timing of the deliverables:

When audit deliverables prepared by the Internal Audit team will be made available to the External Audit function?
Management/Internal Audit function needs to agree on timing with external auditors well in advance to make sure that internal controls compliance project is in process to meet the agreed upon deadlines.

Quality of the deliverables:

Documentation is very important because External Audit engagement team will need to attest that controls are operating effectively based on the examination of the Internal Audit’s documentation. If documentation is inadequate, the External Audit function will deem necessary to perform an independent assessment instead.
See herefor the listing of items Internal Audit should include as part of their documentation (including recommended sampling guidelines) for each control activity.

SUMMARY:

Ensure that those performing testing are qualified to do so (either have an audit experience or otherwise qualified to assess the areas they are testing for operating effectiveness)
Ensure that those performing testing do not have conflicts of interest or segregation of duties concerns (should not test the areas they are assigned to as part of their day-to-day responsibilities, should not be related to or report to anyone they're auditing, etc.)
Ensure that the scope of your work is relevant
Ensure that you cover as much of the period of intended reliance as possible
Ensure the quality of your deliverables (see herefor guidance)
Share your deliverables with the External Auditor team at the agreed upon timeframe

What should external auditors consider when deciding whether to rely on the work of internal auditors?

As a starting point the external auditor should consider the amount of judgment needed in (i) planning and performing relevant audit procedures and (ii) evaluating audit evidence gathered. The greater the level of judgment required, the narrower the scope of work that can be assigned to internal auditors.

What factors do external auditors generally consider before determining whether the work of the internal audit function can be relied upon for the purposes of the audit?

It was found that all three factors affected external auditors' reliance judgment. There were significant interactions between “objectivity” and “competence”, between “objectivity” and “work performed” and three way interactions among those factors.

What are the areas that need to be considered by external auditor before reliance can be placed on internal auditors work?

The findings of the study indicate that technical competence and scope of function are the two most important criteria that external auditors consider in their reliance on internal auditors.

What are the factors to consider before implementing an internal audit function?

5 critical success factors when implementing an audit management system.

Define success. ... .

Prioritize your needs and wants. ... .

Identify and document your desired business processes. ... .

Ensure you have the right stakeholders with the right skills—and the right authority. ... .

Communicate, communicate, communicate!.

What factors should the external auditor consider before placing any reliance on the work of an internal auditor?

Post navigation

What should external auditors consider when deciding whether to rely on the work of internal auditors?

What factors do external auditors generally consider before determining whether the work of the internal audit function can be relied upon for the purposes of the audit?

What are the areas that need to be considered by external auditor before reliance can be placed on internal auditors work?

What are the factors to consider before implementing an internal audit function?

zusammenhängende Posts

What factors should the auditor consider when determining what to include in his or her working papers?

Which of the following factors does an auditor need to consider in planning a particular audit sample for a test of control?

Which of the following factors would an auditor most likely consider in evaluating the control environment for an audit client?

Werbung

NEUESTEN NACHRICHTEN

Which incentive plans are specifically designed to promote group performance

According to the flsa, which individual is most likely a nonexempt employee?

Reactive and protective behaviors designed to avoid action, blame, or change are termed ________.

The machiavellian personality is characterized by the will to manipulate and the desire for power.

Ist ein mann in brunn gefallen noten

Which of the following biometric authentication systems is the most accepted by users?

Was ist der Unterschied zwischen Hanf und CBD?

Wie viele noten braucht man für eine zeugnisnote sachsen-anhalt

Wie fühlt man sich wenn man schwanger ist am anfang

Kann man Basaltemperatur auch tagsüber Messen?

Werbung

Populer

Werbung

Um

Legal

Hilfe

Sozial