Activity Report 2015

Financial Audit | FAOA 2015
17
If the entity has an internal audit function
the auditor makes inquiries of
appropriate internal audit staff and
assesses the nature of internal audit’s
responsibilities, how it fits into the
entity’s organisational structure and
its activities with respect to financial
reporting (ISA 240.19, 315.6 letter a
and 23). The auditor then has the following
choices:
Figure 6
External auditor options with respect to internal audit
Using the work of the internal auditor (ISA 610)
No use of internal audit work
Use of internal audit work
Direct assistance
− Internal audit has insufficient
organisational status;
− Insufficient internal policies and
procedures;
− Competence, skills and objectivity
of internal audit insufficient;
− Insufficiently systematic and
disciplined approach.
− Coordinate respective activities;
− Assess relevant reports;
− Assess nature and extent of internal
audit work and findings;
− Reperformance of work performed
− Assess possible threat to own
independence;
− Assess competence of internal
auditor;
− Written client confirmation
regarding cooperation and
confidentiality;
− Direction, supervision and
review of work performed by
internal auditor
Fundamental to using the work of
internal audit is the evaluation of
its competence and objectivity (ISA
610.15). Whether, and to what extent,
the auditor can rely on the work of the
internal auditor depends on this.
Irrespective of the nature and extent
to which the work of internal audit
is used, responsibility for the external
audit remains solely with the external
auditor. This also applies in cases
where internal auditors provide direct
assistance. The external auditor must
always be sufficiently involved in the
audit. The greater level of professional
judgement and risk of misstatement
in the audit and the less objective and
competent internal audit is, the greater
the involvement of the external
auditor should be.
As part of the current year inspections
the FAOA assessed, amongst
other things, the implementation of
ISA 610 requirements within the audit
methodologies of the five largest
audit firms. In addition, specific application
was inspected as part of the
file reviews.