Page 152 - CA Inter Audit PARAM

CA Ravi Taori
charged with governance regarding the design, implementation and operating effectiveness of
internal control, including those controls that are relevant to the audit.

• Case Discussion & Conclusion
In the given case, internal auditor has found that controls relating to levying of interest have
not operated. The system has not levied stipulated interest in respect of a certain period. It can
result in loss of income for the company and improper financial reporting. Such a matter,
definitely, falls in the domain of reporting by internal auditor.

QNO— Reliance on work of Internal Auditor Old Course -- (P16M/N19E/M21E)
610.07 Bhaskar CNO - SA610.120 New Course – (SM25)
XY & Co. is the internal auditor of PQR Ltd. Explain how the statutory auditor of PQR Ltd. can evaluate
whether the work XY & Co. is likely to be adequate for the purpose of audit?
OR
Under what circumstances, the external auditor should not use the work of the internal audit function ?
OR
CA Sukesh is external auditor of an entity. He comes to know that there is also an internal auditor in the
entity. However, he finds that internal auditor is not reporting directly to higher echelons of the
management. CA Sukesh has also assessed risk of material misstatement to be high. Discuss, whether it
would be proper for CA Sukesh to rely upon work of internal auditor extensively in above situation.
Answer ➢ Three Factors: The external auditor shall determine the usability of the internal audit function's
work for audit purposes by evaluating:
i. The competence level of the internal audit function,
ii. The internal audit function's organizational status, relevant policies and procedures
supporting the objectivity of the internal auditors, and
iii. whether a systematic, disciplined approach, including quality control, is applied.

➢ Professional judgment: The external auditor exercises professional judgment in assessing whether
the work of the internal audit function can be used for audit purposes. This includes evaluating the
objectivity and competence of the internal audit function.

➢ Nature and Extent of Use: The extent to which the internal audit function's organizational status
and relevant policies and procedures support the auditors' objectivity, and the competence level of
the function, are crucial in deciding whether to use the internal audit function's work, and if so, to
what extent and nature in the given circumstances.

Circumstances when work of the internal audit function cannot be used
1. Competence Issues: If the internal audit function is not sufficiently competent, the external auditor
should avoid using its work.

2. Objectivity Concerns: The external auditor should not use the internal audit function's work if it
lacks adequate support for the internal auditors' objectivity.

3. Lack of Systematic Approach: The external auditor should refrain from using the internal audit
function's work if it does not employ a systematic and disciplined approach, including quality
control.

QNO-- Case Study Taking Direct Assistance In Different Areas New Course – (M24M)
610.20 Bhaskar CNO – SA 610.200

CA Z is appointed as statutory auditor of BETA Private Limited for the year 2023-24. There exists an internal
audit function in the company headed by its Chief Internal Auditor, CA K. Valuation of trade receivables of
company is assessed as area of higher risk by statutory auditor. He wants to take direct assistance of Chief

Internal Auditor in respect of above matter. Discuss along with reasons whether it would be proper for
statutory auditor to: -
(i) assign checking of accuracy of aging of trade receivables to Chief Internal Auditor?

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