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

Brightwater Co is audited by Keller & Co. For the year, Keller & Co plans to use the work of the company's internal audit function on inventory counts at twelve warehouses. Which factor most directly indicates that the external auditor should NOT use the internal audit work?

The strongest indicator is that internal audit reports to the finance director and its head is paid based on reported profit, which undermines objectivity. ISA 610 requires the auditor to evaluate objectivity and organisational status. Employment by the company, different formats or prior work do not prevent use.

  1. AThe internal audit function reports to the finance director and its head's remuneration depends on the company's reported profitCorrect
  2. BThe internal audit function uses a different documentation format from that of the external auditor
  3. CThe internal audit function has completed work in the area in previous years
  4. DThe internal auditors are employees of Brightwater Co

Explanation

ISA 610 (Revised 2013) requires evaluation of the objectivity of the internal audit function, including organisational status and reporting lines. Reporting to the finance director with remuneration linked to profit threatens objectivity and weakens the basis for use. Employment status is inherent to internal audit, and format or previous work does not by itself prevent use.

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