Using the Work of Internal Auditors

An internal audit department forms part of the client's system of internal control. If this is an effective element of the control system it may well reduce control risk, and therefore reduce the need for the auditor to perform detailed substantive testing. This will obviously be taken into account during the planning phase of the audit.

Additionally, auditors may be able to co-operate with a client's internal audit department and place reliance on their procedures in place of performing their own.

Procedures for using internal audit

ISA 610 Using the Work of Internal Auditors states that before relying on the work of internal auditors, the external auditor must determine whether it is likely to be adequate for the purposes of the audit. This involves an evaluation of:

• the objectivity of the internal audit function;
• the technical competence of the internal audit function;
• whether the internal audit function is carried out with due professional care; and
• whether there is likely to be effective communication between the internal and external auditor.

If the auditor considers it appropriate to use the work of the internal audit function they then have to incorporate this into their planning to assess the impact on the nature, timing and extent of further audit procedures. They also have to plan adequate time to review the work of the internal audit function to evaluate whether:

• the work was performed by people with adequate technical training and proficiency;
• the work was properly supervised, reviewed and documented;
• sufficient and appropriate evidence has been obtained to be able to draw reasonable conclusions;
• the conclusions reached are appropriate in the circumstances; and
• any unusual matters are properly resolved.

Using internal audit to provide direct assistance

• Internal audit function can provide direct assistance to the external auditor under their supervision and review
• Cannot be provided where laws and regulations prohibit such assistance
• The competence and objectivity of the internal auditor must be considered
• Must not do work which involves significant judgement, a high risk of material misstatement or with which the internal auditor has been involved
• Planned work must be communicated with those charged with governance
• Cannot make excessive use of internal auditor
• Management must not intervene in that work
• Internal auditors must keep the external auditor’s information confidential
• External auditor will provide direction, supervision and review of the internal auditor's work
• External auditor should remain alert to the risk that the internal auditor is not objective or competent

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Tags:	Internal audit