Guide to Using International Standards on Auditing in - IFAC

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<strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts
Paragraph #
Relevant Extracts from ISAs
610.8 The external audi<strong>to</strong>r shall determine:
(a) Whether the work of the internal audi<strong>to</strong>rs is likely <strong>to</strong> be adequate for purposes of the audit; and
(b) If so, the planned effect of the work of the internal audi<strong>to</strong>rs on the nature, timing or extent
of the external audi<strong>to</strong>r’s procedures.
610.9 In determining whether the work of the internal audi<strong>to</strong>rs is likely <strong>to</strong> be adequate for purposes
of the audit, the external audi<strong>to</strong>r shall evaluate:
(a) The objectivity of the internal audit function;
(b) The technical competence of the internal audi<strong>to</strong>rs;
(c)
Whether the work of the internal audi<strong>to</strong>rs is likely <strong>to</strong> be carried out with due professional
care; and
(d) Whether there is likely <strong>to</strong> be effective communication between the internal audi<strong>to</strong>rs and
the external audi<strong>to</strong>r. (Ref: Para. A4)
610.10 In determining the planned effect of the work of the internal audi<strong>to</strong>rs on the nature, timing or
extent of the external audi<strong>to</strong>r’s procedures, the external audi<strong>to</strong>r shall consider:
(a) The nature and scope of specific work performed, or <strong>to</strong> be performed, by the internal audi<strong>to</strong>rs;
(b) The assessed risks of material misstatement at the assertion level for particular classes of
transactions, account balances, and disclosures; and
(c) The degree of subjectivity involved in the evaluation of the audit evidence gathered by
the internal audi<strong>to</strong>rs in support of the relevant assertions. (Ref: Para. A5)
610.11 In order for the external audi<strong>to</strong>r <strong>to</strong> use specific work of the internal audi<strong>to</strong>rs, the external
audi<strong>to</strong>r shall evaluate and perform audit procedures on that work <strong>to</strong> determine its adequacy
for the external audi<strong>to</strong>r’s purposes. (Ref: Para. A6)
610.12 To determine the adequacy of specific work performed by the internal audi<strong>to</strong>rs for the external
audi<strong>to</strong>r’s purposes, the external audi<strong>to</strong>r shall evaluate whether:
(a) The work was performed by internal audi<strong>to</strong>rs having adequate technical training and proficiency;
(b) The work was properly supervised, reviewed and documented;
(c) Adequate audit evidence has been obtained <strong>to</strong> enable the internal audi<strong>to</strong>rs <strong>to</strong> draw
reasonable conclusions;
(d) Conclusions reached are appropriate in the circumstances and any reports prepared by
the internal audi<strong>to</strong>rs are consistent with the results of the work performed; and
(e) Any exceptions or unusual matters disclosed by the internal audi<strong>to</strong>rs are properly resolved.
610.13 If the external audi<strong>to</strong>r uses specific work of the internal audi<strong>to</strong>rs, the external audi<strong>to</strong>r shall
include in the audit documentation the conclusions reached regarding the evaluation of the
adequacy of the work of the internal audi<strong>to</strong>rs, and the audit procedures performed by the
external audi<strong>to</strong>r on that work, in accordance with paragraph 11.
Overview
In larger entities, an internal audit department is often established <strong>to</strong> moni<strong>to</strong>r the effectiveness of various
aspects of internal control. The scope of internal audit activities could include:
• Moni<strong>to</strong>ring of certain elements of internal control;
• Examination of financial and operating information;
• Review of operating activities;
• Review of compliance with laws and regulations;
• Risk management; and/or
• Governance.