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

Sundaram Textiles Pvt Ltd is wholly run by its owner-manager, Mr. Sundaram, who personally reviews the daily cash and stock reports. The statutory auditor asks whether this review can be treated as an internal audit function whose work may be used. Which view is correct?

No. Under SA 610 (Revised), monitoring controls performed by an owner-manager are not considered equivalent to an internal audit function, because people with operational and managerial duties face threats to objectivity. Their control activities can still be tested by the auditor, but not relied on as internal audit.

  1. AYes, because the owner-manager knows the business better than anyone else
  2. BNo, monitoring controls performed by an owner-manager are not considered equivalent to an internal audit functionCorrect
  3. CYes, provided the owner-manager signs the reports every day
  4. DYes, but only if the company's turnover is below a prescribed limit

Explanation

SA 610 (Revised) explains that people with operational and managerial duties face threats to objectivity, so they cannot be treated as an internal audit function. Hence monitoring controls performed by an owner-manager are not equivalent to internal audit. Signing reports daily does not cure the objectivity problem.

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