Document ID: chunk:federal_register_of_legislation:F2016C00028:reg:26:p33
Version: federal_register_of_legislation:F2016C00028
Segment Type: reg
Provision Reference: reg 26 (pt 33/47)
Character Range: 103173–106197

role that the function plays in the entity's monitoring of internal control over financial reporting.  This understanding, together with the information obtained from the auditor's enquiries in paragraph 6(a), may also provide information that is directly relevant to the auditor's identification and assessment of the risks of material misstatement.

A114.      The objectives and scope of an internal audit function, the nature of its responsibilities and its status within the organisation, including the function's authority and accountability, vary widely and depend on the size and structure of the entity and the requirements of management and, where applicable, those charged with governance.  These matters may be out in an internal audit charter or terms of reference.

A115.      The responsibilities of an internal audit function may include performing procedures and evaluating the results to provide assurance to management and those charged with governance regarding the design and effectiveness of risk management, internal control and governance processes.  If so, the internal audit function may play an important role in the entity's monitoring of internal control over financial reporting.  However, the responsibilities of the internal audit function may be focussed on evaluating the economy, efficiency and effectiveness of operations and, if so, the work of the function may not directly relate to the entity's financial reporting.

A116.      The auditor's enquiries of appropriate individuals within the internal audit function in accordance with paragraph 6(a) help the auditor obtain an understanding of the nature of the internal audit function's responsibilities.  If the auditor determines that the function's responsibilities are related to the entity's financial reporting, the auditor may obtain further understanding of the activities performed, or to be performed, by the internal audit function by reviewing the internal audit function's audit plan for the period, if any, and discussing that plan with the appropriate individuals within that function.

A117.      If the nature of the internal audit function's responsibilities and assurance activities are related to the entity's financial reporting, the auditor may also be able to use the work of the internal audit function to modify the nature or timing, or reduce the extent, of audit procedures to be performed directly by the auditor in obtaining audit evidence.  Auditors may be more likely to be able to use the work of an entity's internal audit function when it appears, for example, based on experience in previous audits or the auditor's risk assessment procedures, that the entity has an internal audit function that is adequately and appropriately resourced relative to the size of the entity and the nature of its operations, and has a direct reporting relationship to those charged with governance.

A118.      If, based on the auditor's preliminary understanding of the internal audit function, the auditor expects to