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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Using the work of others

Ostrava Co's external auditor is planning the audit of a complex financial instruments valuation. The internal audit function is competent and objective, and has tested the valuation model. Under ISA 610, which area is MOST likely to restrict the extent to which the auditor can plan to use that work?

Significant judgement and a high assessed risk of material misstatement most restrict reliance on internal audit work. ISA 610 says the greater the judgement and risk, particularly for significant risks, the less the auditor can use that work and the more procedures the auditor must perform directly.

  1. AThe area involves significant judgement and a high assessed risk of material misstatementCorrect
  2. BThe area was also examined in the prior year's audit
  3. CThe internal audit work was completed before the year-end
  4. DThe internal audit function has fewer staff than the finance department

Explanation

ISA 610 states that the more judgement is involved in planning and evaluating audit procedures and evidence, and the higher the assessed risk of material misstatement (especially significant risks), the less the external auditor can rely on internal audit work and the more direct work is needed. Prior-year coverage, timing before year-end (which can be updated by roll-forward) and relative staff numbers are not the primary limiting factors.

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