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CS Professional · Internal and Forensic Audit · Internal Audit Engagements and Planning

Ananya, an external auditor of Sahyadri Pharma Ltd, is planning to use the work of the internal audit function. For a revenue area, she assesses a significant risk of material misstatement and finds that the evaluation of audit evidence needs considerable judgment. How should she plan the use of the internal audit function's work in this area?

She should plan to use less of the internal audit function's work and perform more of the work directly. SA 610 (Revised) says greater judgment and higher assessed risk, particularly significant risks, call for more direct work by the external auditor to prevent undue use of internal audit work.

  1. APlan to use more of the internal audit work, because it saves time on complex areas
  2. BPlan to use less of the internal audit work and perform more of the work directlyCorrect
  3. CUse the internal audit work fully and take over the judgments to the internal auditors
  4. DUse the internal audit work in the same extent as in a low-risk area

Explanation

Under SA 610 (Revised), para 18, the external auditor plans to use less of the function's work and perform more directly when more judgment is involved and when the assessed risk of material misstatement is higher, especially significant risks. Using more of it would invite undue use, which the standard seeks to prevent.

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