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

Ishaan & Co, auditors of Pioneer Steels Ltd, find that the company's internal auditor reports directly to the finance head, who also prepares the financial statements. Management says the internal audit function should therefore be fully relied upon. What is the auditor's best response under SA 610?

The auditor should evaluate the internal audit function's objectivity, competence and systematic approach, treating the reporting to the finance head as a threat to objectivity. This may limit reliance. The auditor retains sole responsibility for the opinion and cannot hand it over.

  1. ARely fully because an internal audit function exists
  2. BEvaluate the function's objectivity, competence and systematic approach before deciding the extent of use of its work, treating the reporting line as a threat to objectivityCorrect
  3. CTransfer responsibility for the audit opinion to the internal auditor
  4. DReject any use of internal audit work in every circumstance

Explanation

SA 610 requires the auditor to assess the objectivity, competence and discipline of the internal audit function. Reporting to the person responsible for the financial statements weakens objectivity, so reliance is limited. The auditor never shares or transfers responsibility for the opinion.

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