CA Final · Advanced Auditing, Assurance and Professional Ethics · Audit Planning, Strategy and Execution

In the audit of Bharat Steels Ltd, the internal audit function has tested the entity's valuation of a complex long-term provision whose measurement involves significant management judgment. CA Meera, the external auditor, proposes to rely wholly on the internal audit work and perform no direct procedures on the provision. What is the correct conclusion under SA 610 (Revised)?

Wholly relying on internal audit work is not acceptable. Under SA 610 (Revised), the greater the judgment involved, the more procedures the external auditor must perform directly, since internal audit work alone will not provide sufficient appropriate evidence. Evaluating significant accounting estimates is a significant judgment for the external auditor.

1. AAcceptable, provided the internal auditors are qualified chartered accountants
2. BAcceptable, as using internal audit work reduces the external auditor's responsibility for the opinion
3. CNot acceptable, because the greater the judgment involved, the more procedures the external auditor must perform directly, as internal audit work alone will not provide sufficient appropriate evidenceCorrect
4. DAcceptable, if the audit committee approves the reliance in writing