Acca aaa s21 Notes

3. Making use of internal audit work
As was mentioned earlier, external auditors are solely responsible for the audit opinion and that 
responsibility is not reduced by using the work of internal audit. To use the work of internal auditor 
the external must consider:
1. Can the work of internal audit be used?
2. If so, to what extent?.
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If seeking to rely on the work of internal audit, the external auditor must:
๏
Assess the organisational status of the internal audit department. Are the internal auditors 
objective? To whom do they report? (Should normally be the audit committee but they should 
also have access to senior directors). The size of the internal audit department can be relevant. A 
single internal auditor in a company can have a lonely existence, unsupported by colleagues. 
However, a team of 10 internal auditors can provide mutual strength. (Note that if the internal 
audit function is outsourced, it might be more independent and objective than when the 
internal auditors are employees.)
๏
Assess the competence of the internal audit department: are the employees members of a 
professionals body? Are they qualified? Do they undergo regular training and updates? Do they 
have time and resources to carry out their work adequately?
๏
Assess if the internal auditors carry out their work in a disciplined and systematic way. Are there 
quality controls? Is there standard documentation? Is the work planned and reviewed?
If any of these three qualities are absent (objectivity, competence and a systematic and disciplined 
approach), the work of internal audit must NOT be used.
If all three qualities are present, the external auditor may plan to use their work and co-ordinate their 
respective activities. The external auditor should assess if:
๏
The internal audit work was properly planned, executed, supervised, reviewed and documented.
๏
Sufficient appropriate evidence had been obtained to enable the internal auditors to draw 
reasonable conclusions.
๏
The conclusions reached are appropriate and the reports produced are consistent with the 
results of the work performed.
The assessment will involve the external auditor reviewing the working papers of the internal audit 
function and making inquiries of appropriate individuals. It must also include some