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

Kaveri Pharma's auditor finds that a key estimate on inventory valuation requires substantial judgment in both performing procedures and evaluating evidence. How should the auditor approach using the internal audit function's work on this area?

The auditor should perform more procedures directly. The greater the judgment needed in performing procedures and evaluating evidence, the less the external auditor can use internal audit work, because that work alone will not provide sufficient appropriate audit evidence.

  1. AUse more of the internal audit function's work, since it knows the entity well
  2. BPerform more procedures directly, because relying only on internal audit would not give sufficient appropriate evidenceCorrect
  3. CRely fully on internal audit if its report is signed by the head of internal audit
  4. DDelegate the evaluation of evidence entirely to internal auditors

Explanation

Under SA 610 (Revised), the greater the judgment involved in planning and performing procedures and evaluating evidence, the more the external auditor must perform directly. Using internal audit work alone would not give sufficient appropriate audit evidence, so using more of it is wrong.

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