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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Using the work of others

Auditor Pell & Co is auditing Orsini Pharma, where internal audit has tested controls over the revenue cycle. Pell & Co assessed a significant risk of fraud in revenue recognition involving management judgement. Which approach to using internal audit is most appropriate under ISA 610?

Pell & Co should limit its use of internal audit on this area. ISA 610 says the higher the assessed risk and the greater the judgement, as with a significant revenue fraud risk, the more evidence the external auditor must gather itself and the less it can use internal audit's work.

  1. AUse internal audit's testing as the main evidence, as the function is competent and objective
  2. BPlan limited use of internal audit work on this area, as the greater the judgement and assessed risk, the less the auditor can rely on itCorrect
  3. CUse internal audit staff to directly assist by performing the tests under the audit team's supervision for judgemental revenue estimates, with no further review
  4. DRely on internal audit if its work was reviewed by the audit committee

Explanation

ISA 610 states that the higher the assessed risk of material misstatement and the greater the judgement involved, the more the external auditor must do directly and the less internal audit work can be used. Significant risks, including fraud risks, call for the auditor's own evidence. Audit committee review does not change this, and no direct assistance is allowed without evaluating threats and supervising.

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