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CA Intermediate · Auditing and Ethics · Nature, Objective and Scope of Audit

Sundaram & Co., Chartered Accountants, are auditing Lotus Textiles Ltd. During the audit, the CFO says that since the company's own internal auditor has already checked all ledgers, the statutory auditors can simply rely on the internal auditor's report and sign the audit report. Which response is correct?

The statutory auditor must form an independent opinion. Internal audit work may be used only after evaluating its competence and objectivity, but the auditor alone remains responsible for the opinion expressed. Responsibility cannot be delegated to or shared with the internal auditor or reduced by referring to that work.

  1. AThe statutory auditor may adopt the internal auditor's conclusions fully, as the internal auditor is an employee with better knowledge
  2. BThe statutory auditor must form an independent opinion and may use the internal auditor's work only after evaluating it, retaining sole responsibility for the opinionCorrect
  3. CThe statutory auditor should delegate the opinion to the internal auditor and only countersign the report
  4. DThe statutory auditor can reduce responsibility in the report by stating that the opinion is based on the internal auditor's work

Explanation

The auditor has sole responsibility for the audit opinion. Work of an internal auditor can be used only after evaluating its objectivity and competence, and this does not reduce the auditor's responsibility. Options that shift or share responsibility are wrong because the opinion cannot be delegated.

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