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CS Professional · Compliance Management, Audit and Due Diligence · Internal Audit and Performance Audit

Sundaram Textiles Ltd's statutory auditor is considering using the work of the company's internal audit function. The auditor finds that the head of internal audit reports to the Finance Director whose own department is under review, and the policies do not protect internal auditors from influence. Under SA 610 (Revised), what should the external auditor conclude?

The external auditor should not use the internal audit function's work. SA 610 (Revised) bars use where organizational status and policies do not adequately support the objectivity of internal auditors. Adequate competence alone cannot compensate for compromised objectivity.

  1. AUse the work, but only after raising performance materiality
  2. BUse the work only for low-risk areas of the audit
  3. CNot use the work of the internal audit function, because its status and policies do not adequately support objectivityCorrect
  4. DUse the work if the function has enough competent staff

Explanation

Para 16(a) states the external auditor shall not use the work of the internal audit function if its organizational status and relevant policies and procedures do not adequately support objectivity of internal auditors. Competence of staff (the last option) cannot cure a lack of objectivity, because each of the three conditions must be met.

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