“The statutory auditor is entitled to rely on the internal auditor”.

Auditing and Assurance Revision Questions and Answers

The role of the internal audit function within an entity is determined management and its prime objective differs from that of the external auditor who is appointed to report independently on financial information. By its very nature, the internal audit function cannot be expected to have the same degree of independence as is essential when the external auditor expresses his opinion on the financial information. Where the external auditor intends to rely upon the specific internal audit work, he has to carry out the general evaluation of the internal audit function considering the organizational status, nature and depth of coverage of internal auditor, technical competence and whether the audit work was carried out with due professional care.

Where, following the general evaluation, the external auditor intends to rely upon specific internal audit work as a basis for modifying the nature, timing and extent of his procedures, he should review the internal auditors’ work, taking into account the following factors:

1. The scope of work and related audit programmes are adequate for the external auditor’s purpose.

2. The work was properly planned and the work of assistants was properly supervised, reviewed and documented.

3. Sufficient appropriate evidence was obtained to afford a reasonable basis for the conclusions reached.

4. Conclusions reached are appropriate in the circumstances and any reports prepared are consistent with the results of the work performed.

5. Any exceptions or unusual matters disclosed the internal auditor’s procedure have been properly resolved. The external auditor should also test the work of the internal auditor on which he intends to rely. The nature, timing, and extent of the external auditor’s test will depend upon his judgment

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