SA 610 Query

Internal audit function- A function of an entity that performs assurance & consulting activities designed to evaluate and improve the effectiveness of the entity’s governance, risk management and internal control processes.

Requirements of SA 610 (Revised)-

-Determining Whether, in Which Areas, and to What Extent the Work of the Internal Audit Function Can Be Used.

-Evaluating the Internal Audit Function

The external auditor shall determine whether the work of the internal audit function can be used for purposes of the audit by evaluating the following:

(a) The extent to which the internal audit function’s organizational status and relevant policies and procedures support the objectivity of the internal auditors;

(b) The level of competence of the internal audit function; and(c) Whether the internal audit function applies a systematic and disciplined approach, including quality control.

The external auditor shall not use the work of the internal audit function if the external auditor determines that:

(a) The function’s organizational status and relevant policies and procedures do not adequately support the objectivity of internal auditors;

(b) The function lacks sufficient competence; or

(c) The function does not apply a systematic and disciplined approach, including quality control.

Using the Work of the Internal of the Internal Audit Function

1. If the external auditor plans to use the work of the internal audit function, the external auditor shall discuss the planned use of its work.

2. The external auditor shall read the reports of the internal audit function relating to the work of the function that the external auditor plans to use to obtain an understanding of the nature and extent of audit procedures it performed and the related findings.

3. The external auditor shall perform sufficient audit procedures on the work of the internal audit function as a whole that the external auditor plans to use to determine its adequacy for purposes of the audit, including evaluating whether:

a. The work of the function had been properly planned, performed, supervised, reviewed and documented;

b. Sufficient appropriate evidence had been obtained to enable the function to draw reasonable conclusions; and

c. Conclusions reached are appropriate in the circumstances and the reports prepared by the function are consistent with the results of the work performed.

4. The nature and extent of the external auditor’s audit procedures shall be responsive to the external auditor’s evaluation of:

a. The amount of judgment involved;

b. The assessed risk of material misstatement;

c. The extent to which the internal audit function’s organizational status and relevant policies and procedures support the objectivity of the internal auditors; andd. The level of competence of the function;and shall include re-performance of some of the work.

5. The external auditor shall also evaluate whether the external auditor’s conclusions regarding the internal audit function and the determination of the nature and extent of use of the work of the function for purposes of the audit remain appropriate.

Documentation w.r.t. Use of work of Internal Audit Function by external Auditor-

(a) The evaluation of:

(i) Whether the function’s organizational status and relevant policies and procedures adequately support the objectivity of the internal auditors;

(ii) The level of competence of the function; and

(iii) Whether the function applies a systematic and disciplined approach, including quality control;

(b) The nature and extent of the work used and the basis for that decision; and

(c) The audit procedures performed by the external auditor to evaluate the adequacy of the work used.