Obtaining an understanding of the activities of the internal audit function before relying on its workCSAE 3001 requires that the audit team makes inquiries regarding whether the audited entity has an internal audit function and, when it is the case, needs to obtain an understanding of the activities of the internal audit function (i.e. the objectivity of the internal auditors, the level of competence of the internal audit unit, and processes in place to ensure quality of the work conducted). This evaluation is done during the planning phase of the audit. Show
To evaluate whether the internal audit function’s organizational status and relevant policies and procedures support the objectivity of the internal auditors, the audit team may consider:
The audit team should also consider whether there are policies to maintain internal auditors’ objectivity, such as prohibiting internal auditors from auditing areas where they were recently assigned or where relatives are employed. [Exhibit—Text Version] To assess the level of competence of the internal audit function, the audit team needs to consider whether
To evaluate whether the internal audit function applies a systematic and disciplined approach, including quality control, the audit team may consider whether:
It is normally sufficient to perform an overall assessment of the internal audit function. If the audit team is satisfied that there are appropriate policies and procedures in place to assess the competence of internal auditors and there is adequate quality assurance over the completion of the working papers and reports in place to assess the due professional care of internal auditors, the team does not need to reassess these factors for each internal audit conducted. Evaluating the adequacy of the work of internal audit on the engagementOnce the audit team has obtained an understanding of the activities of the internal audit function, CSAE 3001 requires that the team assess whether the work of the internal audit function is adequate for the purposes of the engagement before planning to rely on it. To carry out an evaluation of the work of internal audit, the team needs to consider whether
When planning to evaluate and perform audit procedures on specific work of the internal audit function, the audit team is encouraged to have an agreement with internal audit to obtain the information necessary to complete this evaluation. Information that is likely to support the evaluation includes
Reporting considerations for special examinationsAuditors are required to include in the special examination report a statement on how far they relied or not on internal audits, as indicated in Section 139(2)(b) of the Financial Administration Act. The OAG special examination report template includes draft wording to satisfy this requirement. When planning to include a statement of reliance on internal audits, auditors should advise the head of the entity’s internal audit function. What are the factors to consider before implementing an internal audit function?5 critical success factors when implementing an audit management system. Define success. ... . Prioritize your needs and wants. ... . Identify and document your desired business processes. ... . Ensure you have the right stakeholders with the right skills—and the right authority. ... . Communicate, communicate, communicate!. What are the factors the auditor must evaluate to understand it?Yes, an auditor must understand each component of the client's financial reporting controls. This includes the control environment, risk assessment process, information system, control activities that relate to the audit, and the client's monitoring of the controls.
What factors do external auditors generally consider before determining whether the work of the internal audit function can be relied upon for the purposes of the audit?It was found that all three factors affected external auditors' reliance judgment. There were significant interactions between “objectivity” and “competence”, between “objectivity” and “work performed” and three way interactions among those factors.
What factors should the external auditor consider before placing any reliance on the work of an internal auditor?four factors that may affect external auditors' determination of whether internal audit work is adequate for the purpose of their audit. These factors are objectivity, technical competence, due professional care and communication.
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