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CS Professional · Compliance Management, Audit and Due Diligence · Concepts of Various Audits

Orion Steels Ltd's audit committee wants to rely on the work of the internal auditor for the annual evaluation of internal financial controls. The statutory auditor, Mr. Iyer, plans to use the same internal audit work in his own audit. Which approach is consistent with audit standards on using the work of internal auditors?

The auditor may use the internal auditor's work after evaluating its objectivity, competence and quality, yet he alone remains responsible for the audit opinion. Responsibility is not reduced by reliance, and neither committee approval nor rejection merely because of employment status is the correct approach.

  1. AHe may use the work after evaluating its objectivity, competence and quality, but remains solely responsible for his opinionCorrect
  2. BHe may use it fully and reduce his responsibility proportionately in the audit report
  3. CHe must reject it because internal auditors are employees of the company
  4. DHe may use it without any evaluation if the audit committee has approved the internal auditor

Explanation

Standards permit the external auditor to use internal audit work after assessing its objectivity, competence and systematic approach. Responsibility for the opinion cannot be shared or reduced by reference to others' work. Audit committee approval does not remove the need for the auditor's own evaluation.

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