Document ID: chunk:federal_register_of_legislation:F2023C01133:reg:7:p12
Version: federal_register_of_legislation:F2023C01133
Segment Type: reg
Provision Reference: reg 7 (pt 12/17)
Character Range: 37853–40845

engagement team will use the results of the internal audit service without properly evaluating those results or without exercising the same level of professional scepticism as would be exercised when the internal audit work is performed by individuals who are not members of the firm.  The relevant ethical requirements[17],[#] discuss the prohibitions that apply in certain circumstances and the threats and the safeguards that can be applied to reduce the threats to an acceptable level in other circumstances.

Determining the Nature and Extent of Work of the Internal Audit Function that Can Be Used

Factors Affecting the Determination of the Nature and Extent of the Work of the Internal Audit Function that Can Be Used  (Ref: Para. 17–19)

A15.         Once the external auditor has determined that the work of the internal audit function can be used for purposes of the audit, a first consideration is whether the planned nature and scope of the work of the internal audit function that has been performed, or is planned to be performed, is relevant to the overall audit strategy and audit plan that the external auditor has established in accordance with ASA 300.[18]

A16.         Examples of work of the internal audit function that can be used by the external auditor include the following:

           * Testing of the operating effectiveness of controls.

           * Substantive procedures involving limited judgement.

           * Observations of inventory counts.

           * Tracing transactions through the information system relevant to financial reporting.

           * Testing of compliance with regulatory requirements.

A17.         The external auditor's determination of the planned nature and extent of use of the work of the internal audit function will be influenced by the external auditor's evaluation of the extent to which the internal audit function's organisational status and relevant policies and procedures adequately support the objectivity of the internal auditors and the level of competence of the internal audit function in paragraph 18 of this Auditing Standard.  In addition, the amount of judgement needed in planning, performing and evaluating such work and the assessed risk of material misstatement at the assertion level are inputs to the external auditor's determination.  Further, there are circumstances in which the external auditor cannot use the work of the internal audit function for purpose of the audit as described in paragraph 16 of this Auditing Standard.

Judgements in planning and performing audit procedures and evaluating results  (Ref: Para. 18(a))

A18.         The greater the judgement needed to be exercised in planning and performing the audit procedures and evaluating the audit evidence, the external auditor will need to perform more procedures directly in accordance with paragraph 18 of this Auditing Standard, because using the work of the internal audit function alone will not provide the external auditor