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ACCA Applied Skills · Audit and Assurance

The Work of Others in ACCA Audit and Assurance

The work of others covers when an external auditor can use evidence from internal auditors, an auditor's expert, a service organisation's auditor or another group component auditor. You assess competence, objectivity and the quality of work, decide the extent of reliance, and keep sole responsibility for the audit opinion.

What this chapter covers

This chapter deals with a simple question: when can you use someone else's work as audit evidence? Clients often have an internal audit function. They may use a valuer or actuary. They may outsource payroll or custody. Groups have components audited by other firms. In each case you may use the work, but only after you judge it is reliable.

The four topics share one logic. First, assess the other party: competence, capabilities, objectivity and, for internal audit, whether a systematic and disciplined approach is applied. Second, evaluate the work itself: is it adequate for your purpose? Third, decide how far to rely on it and what extra procedures you need. Finally, remember that the opinion is yours alone. You do not refer to the other party in an unmodified report.

The chapter links to risk assessment, internal control, audit evidence, completion and reporting. It also links to the group and the use of estimates. Expect it in Section A OT cases, where each of the three 10-mark cases has five two-mark objective questions on one scenario, and in Section B constructed response questions asking you to assess reliance or list procedures.

The work of others turns up in scenarios because it is practical and easy to test. A short case can describe an internal audit team, a valuer, an outsourced payroll provider or a component auditor, and then ask what you should do. The questions reward a clear framework you can apply to any fact pattern. Objective questions are all or nothing, so you need exact points. Written questions reward structured evaluation and specific procedures rather than general statements. Learn the framework well and you can score on several parts of the paper.

The work of others: topics in the order to study them

  1. 1Using the Work of Internal AuditorsStart here because it introduces the core test of competence, objectivity and quality of work, which the other topics repeat.
  2. 2Using the Work of an Auditor's ExpertIt reuses the same evaluation framework, applied to a specialist such as a valuer, and adds the rules on agreeing scope and reporting.
  3. 3Using a Service Organisation's ReportsNext, you learn how outsourcing affects the user auditor's understanding of controls and what type 1 and type 2 reports give you.
  4. 4Reliance on Other Auditors and Group Audit ConsiderationsStudy this last because it is the widest topic, building on all earlier ideas and adding group scope, communication and involvement.

How to prepare The work of others

Prepare this chapter by learning one framework and then adapting it to each of the four topics.

  1. Write the common framework on one page: assess the other party, evaluate the work, decide the extent of reliance, perform extra procedures, take responsibility for the opinion.
  2. For internal audit, learn the factors you consider and the work you should re-perform or test before relying on it. Also learn which tasks cannot be handed over because they need your judgement.
  3. For an auditor's expert, learn how you assess competence, capabilities and objectivity, agree the scope, and evaluate the findings and assumptions used.
  4. For service organisations, learn why you need to understand the controls at the service organisation, and the difference between type 1 and type 2 reports. Link each to your risk assessment.
  5. For other auditors and groups, learn how you assess the component auditor and which matters you communicate to them. Also learn what you do when you are not satisfied.
  6. Practise Section A style OT cases under time pressure. Answer using exact points, then write a short answer to a Section B constructed response requirement that asks for factors or procedures.
  7. Review your errors and note whether you missed the point, or mistook responsibility for the opinion.

Common mistakes in The work of others

  • Saying the external auditor can pass responsibility to the internal auditor, expert or component auditor.

    Fix: State clearly that responsibility for the opinion is not reduced by using the work of others.

  • Listing competence only and omitting objectivity, or the reverse.

    Fix: Use the full set: competence, capabilities and objectivity, then evaluate the work itself.

  • Giving generic procedures such as 'review the work' without saying what you would do.

    Fix: Name specific steps, such as re-performing a sample, reviewing working papers, testing the assumptions or discussing findings with the component auditor.

  • Confusing type 1 and type 2 service organisation reports.

    Fix: Remember that type 2 tests operating effectiveness over a period; type 1 describes design at a point in time.

  • Treating all internal audit work as reliable because the client has an internal audit department.

    Fix: Look for clues on reporting lines, qualifications, scope limits and management influence before concluding on reliance.

  • Ignoring the scenario and writing a textbook list in written answers.

    Fix: Tie each point to a fact in the case, and prioritise the points that matter most to the risk described.

Last-day revision: The work of others

  • You keep sole responsibility for the audit opinion, whoever else did work.
  • Assess any other party on competence, capabilities and objectivity before using their work.
  • Internal audit work is useful only if it is adequate for your purpose and you have evaluated it.
  • The more judgement involved in an area, the less you can rely on internal audit work.
  • Direct assistance from internal auditors is restricted by the level of risk and their objectivity.
  • An auditor's expert may be management's or your own; the evaluation differs in scope and objectivity.
  • Agree the expert's scope, work, roles and reporting in writing.
  • Evaluate the expert's findings, assumptions, methods and source data for reasonableness.
  • A type 1 report covers design at a date; a type 2 report covers design and operating effectiveness over a period.
  • A user auditor needs to understand how the service organisation's controls affect the financial statements.
  • For groups, the group auditor decides the involvement needed in component auditors' work.
  • Do not refer to the expert or another auditor in an unmodified opinion.

The work of others in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

The work of others: frequently asked questions

Can an external auditor rely fully on internal audit work?

No. You decide the extent of use based on your assessment of the function and the work, and the risk and judgement involved. You remain solely responsible for the opinion.

What is the difference between a type 1 and a type 2 report?

A type 1 report describes the service organisation's system and the design of its controls at a specific date. A type 2 report also tests whether the controls operated effectively over a period, so it gives more evidence.

Do I mention an expert in the audit report?

Not in an unmodified opinion, because doing so could suggest the responsibility is divided. Reference may be relevant in limited cases, such as a modified opinion where the reason is explained.

How is this chapter tested in the AA exam?

Mainly through scenario-based objective test cases and constructed response requirements. You may be asked to assess whether to use someone's work, or to suggest procedures. Practise applying the framework to short case facts.