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

The statutory auditor of Himalaya Cements Ltd plans to use the internal audit function's work. Its organisational status adequately supports objectivity and competence is good, but the area involves a significant risk of material misstatement and heavy judgment in evaluating evidence. Under SA 610 (Revised), how should the external auditor plan?

The external auditor should plan to use less of the internal audit work and perform more procedures directly. SA 610 (Revised) says the more judgment involved and the higher the assessed risk, especially significant risks, the less internal audit work should be used, because the external auditor alone makes significant judgments.

  1. AUse more of the internal audit work, since competence is good
  2. BUse less of the internal audit work and perform more of the work directlyCorrect
  3. CUse the internal audit work in full, as the external auditor can delegate significant judgments
  4. DIgnore the internal audit function and make no use of its work in any area

Explanation

SA 610 (Revised) requires the external auditor to make all significant judgments and to plan to use less of the function's work and do more directly where more judgment is involved and where assessed risk of material misstatement is higher, with special consideration for significant risks. Good competence does not override these factors. Total rejection is not required either.

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