Skip to content

CA Intermediate · Auditing and Ethics · Risk Assessment and Internal Control

During the audit of Bharat Steels Pvt Ltd, the auditor learns that the internal auditor reports directly to the finance manager, who is also responsible for the accounting records. The auditor wants to use the internal audit work to reduce own testing under SA 610. What is the correct approach?

The auditor must evaluate the internal audit function's objectivity, competence and systematic approach. Because the internal auditor reports to the finance manager responsible for the records, objectivity is weakened and reliance may be limited. The auditor keeps sole responsibility for the opinion and cannot delegate it.

  1. AUse the work fully since an internal auditor is always independent of management
  2. BNot evaluate the internal audit function and simply cite it in the audit report
  3. CEvaluate objectivity, competence and systematic approach of the function; the weak organisational status may limit planned reliance on its workCorrect
  4. DDelegate the opinion on the financial statements to the internal auditor

Explanation

SA 610 requires evaluating the organisational status, competence and due professional care of the internal audit function. Reporting to the finance manager who owns the records threatens objectivity, so reliance may be limited. The auditor keeps sole responsibility for the opinion and cannot delegate it or cite the internal auditor's work in the report.

Did you get it right without looking?

One question tells you little. A timed set on Risk Assessment and Internal Control shows your real accuracy, how long you take and where you lose marks.

Practise Risk Assessment and Internal ControlFree diagnostic mock

More Risk Assessment and Internal Control questions