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

Vikram Steel Ltd has an internal audit function whose organisational status weakly supports objectivity, and the external auditor has assessed a significant risk of material misstatement on revenue. Under SA 610 (Revised), how should the external auditor plan to use the function's work on this area?

The external auditor should plan to use less of the internal audit function's work and perform more of the work directly. SA 610 (Revised) requires this when assessed risk is higher, especially for significant risks, or when organisational status inadequately supports objectivity of internal auditors.

  1. AUse more of the function's work, since it knows the company better
  2. BUse less of the function's work and perform more of the work directlyCorrect
  3. CUse the work fully, provided management approves
  4. DDelegate the evaluation of audit evidence to the internal auditors

Explanation

SA 610 (Revised) para 18 says the external auditor shall plan to use less of the function's work and perform more directly when judgment is greater, assessed risk is higher (especially significant risks), the function's status supports objectivity less, or competence is lower. Here two factors point towards less use.

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