CS Professional · Internal and Forensic Audit · Reporting under Internal Audit
During coordination, Meera, an internal auditor at Bharat Logistics Ltd, tells the external auditor that she suspects a purchase manager has been colluding with a vendor. How does SA 610 (Revised) suggest the external auditor should treat this communication?
The external auditor should take the information into account when identifying and assessing the risks of material misstatement due to fraud under SA 240. Such communication helps alert the auditor to matters affecting the audit, but the judgment on risk remains the external auditor's own.
- AIgnore it, as fraud suspicion is outside the external auditor's scope
- BTake it into account when identifying the risks of material misstatement due to fraud under SA 240Correct
- CHand over the assessment of fraud risk to the internal auditor entirely
- DWithdraw from using any work of the internal audit function
Explanation
The text says communication with the internal audit function may bring matters to the external auditor's attention, and information on actual, suspected or alleged fraud can be taken into account in identifying fraud risks per SA 240. Assessing risk is a significant judgment that cannot be delegated.
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