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

In auditing Ganga Pharma Ltd, the external auditor finds that the valuation of a significant accounting estimate needs considerable judgment. The internal audit function has tested the estimate. Under SA 610 (Revised), what is the consequence?

The external auditor must perform more procedures directly. The greater the judgment involved, the less the internal audit function's work alone can supply sufficient appropriate evidence, and the external auditor has sole responsibility for the audit opinion, including judgments on significant accounting estimates.

  1. AThe external auditor needs to perform more procedures directly, since using internal audit work alone will not give sufficient appropriate evidenceCorrect
  2. BThe external auditor may share responsibility for the opinion with internal audit
  3. CThe internal audit work may replace direct procedures entirely because it is competent
  4. DThe external auditor should reduce procedures as judgment increases

Explanation

SA 610 (Revised) states that the greater the judgment needed in planning, performing procedures and evaluating evidence, the more procedures the external auditor must perform directly. Evaluating significant accounting estimates is a significant judgment, and the external auditor has sole responsibility for the opinion, so sharing or replacing is wrong.

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