Internal Auditors

Question 1

Internal Auditors

Answer 1

Internal auditors are responsible for providing analyses, evaluations, assurances, recommendations, and other information to the entity’s management and those charged with governance.

To fulfill this responsibility, internal auditors
maintain objectivity.

Internal auditors also review, assess, and monitor the performance of entity internal controls. In the
process, they obtain evidence regarding the design and effectiveness of controls that relate to the entity’s ability to initiate, authorize, record, process, and report financial data consistent with the assertions embodied in the financial statements.
Information obtained by internal audit may provide direct evidence about potential misstatements of financial data.

Question 2

Internal Controls

Answer 2

Independent auditors are required to obtain an understanding of the entity and its environment, including the internal controls.

• This understanding includes the monitoring function of internal control (for which internal audit is responsible), as well as the design of the control procedures (which internal audit documents). The work done by internal auditors may reduce or change the work needed to be performed by the independent auditor.
• The standards state that the auditor should obtain an understanding of the internal audit function sufficient to identify those internal audit activities that are relevant to planning the audit

Question 3

Reliance on Internal Auditors’ Work

Answer 3

If the auditor decides to consider the effect of the internal auditors’ work on the audit or to use internal auditors to provide direct assistance, the next step is to evaluate:

• a. the objectivity of the internal audit function;
• b. the internal auditors’ technical competence;
• c. that the internal auditors’ work is carried out with due professional care; and
• d. that the communications between the internal and external auditors are effective.
• e. the internal auditors’ knowledge of prior-year audits;
• f. how the internal auditors allocate their audit resources
• g. the scope of internal audit activities.

Question 4

Internal Auditors Objectivity

Answer 4

AU-C 610.10 states:

When assessing the internal auditors’ objectivity, the auditor should obtain or update information from prior years about such factors as:

• the organizational status of the internal audit function
• whether the internal auditor reports to an officer of sufficient status to ensure broad audit coverage and adequate consideration of recommendations of the internal auditors.

Question 5

Internal Auditors’ Tests of Controls

Answer 5

Auditors may use the results of the internal auditors’ tests of controls regarding the effectiveness of relevant controls to reduce the extent of control testing procedures.

IE: the internal auditors’ scope may include tests of controls for the completeness of accounts payable. The results of internal auditors’ tests may provide appropriate information about the effectiveness of controls and reduce the amount of testing necessary