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CS Professional · Compliance Management, Audit and Due Diligence · Internal Audit and Performance Audit

Bharat Steels Ltd's internal audit function reports to the CFO, is staffed by junior trainees, and its judgments on inventory valuation are significant to the financial statements, where the assessed risk of material misstatement is high. Mr. Iyer, the statutory auditor, still wishes to use its work. As per SA 610 (Revised), what is the effect on his procedures?

He needs to perform more audit procedures on the overall body of the internal audit function's work. SA 610 (Revised) says greater judgment, higher assessed risk, weaker objectivity support or lower competence all increase the procedures required before the work can support the audit opinion.

  1. AHe may use the work without further procedures because internal audit is part of the company
  2. BHe must reject all internal audit work, because use is prohibited whenever the risk is high
  3. CHe needs fewer procedures since the function is internal to the entity
  4. DHe needs to perform more audit procedures on the overall body of the function's work to support the decision to use itCorrect

Explanation

The standard says the more judgment involved, the higher the assessed risk, the weaker the support for objectivity, or the lower the competence, the more procedures the external auditor needs on the overall body of work. It does not prohibit use, and being internal gives no reduction.

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