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CS Professional · Internal and Forensic Audit · Internal Audit Engagements and Planning

During the year, the internal auditor of Godavari Motors Ltd informs the external auditor of a suspected fraud in the purchase department. According to SA 610 (Revised), how may the external auditor use this information in planning and performing the audit?

The external auditor can take the information into account when identifying and assessing risks of material misstatement, including risk due to fraud in accordance with SA 240. Communication with the internal audit function throughout the engagement allows such suspected or alleged fraud matters to inform the audit plan.

  1. AIgnore it, since only management can report fraud to the external auditor
  2. BTake it into account in identifying and assessing risks of material misstatement, including risk due to fraud under SA 240Correct
  3. CTreat it as conclusive audit evidence and stop further procedures in purchases
  4. DPass it on to the internal audit function to decide the audit opinion

Explanation

SA 610 (Revised) explains that communication with the internal audit function throughout the engagement lets internal auditors bring matters to the external auditor's attention. Information indicating heightened risk or any actual, suspected or alleged fraud can be taken into account in identifying and assessing the risk of material misstatement due to fraud in accordance with SA 240.

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