Page 153 - CA Inter Audit PARAM

CA Ravi Taori
(ii) assign evaluation of adequacy of provision based on aging of trade receivables to Chief Internal
Auditor?
Answer In accordance with SA 610, the external auditor shall not use internal auditors to provide direct assistance to
perform procedures that relate to higher assessed risks of material misstatement where the judgment
required in performing the relevant audit procedures or evaluating the audit evidence gathered is more than
limited.

In the given situation, valuation of trade receivables is assigned as an area of higher risk by statutory auditor.
Judgment required in checking of accuracy of aging of trade receivables is limited. Therefore, external auditor
can assign the checking of the accuracy of the aging to Chief Internal Auditor providing direct assistance as it
involves limited judgment.

However, because the evaluation of the adequacy of the provision based on the aging would involve more
than limited judgment, it would not be appropriate to assign that latter procedure to Chief Internal Auditor
providing direct assistance.

QNO-- Step 3 Using Work of Internal Auditor (Discussion & Co-ordination) New Course – (M24E)
610.40 Bhaskar CNO –SA 610.160

M/s PSR & Associates are the auditors of The Saturn Hotel, a chain of five star hotels. Since the nature of
their business is prone to frauds, the company has appointed internal auditors at various locations. The
company has also devised a system of effective and efficient internal controls. The auditors, M/s PSR &
Associates, want to use the work of the internal auditors. In order to ensure effectiveness, what kind of
coordination should be there between the external auditor and the internal audit function?"
Answer As per SA 610, “Using the Work of Internal Auditors”, coordination between the external auditor and the
internal audit function is effective when, for example;

(i) Discussions take place at appropriate intervals throughout the period.

(ii) The external auditor informs the internal audit function of significant matters that may affect the
function.

(iii) The external auditor is advised of and has access to relevant reports of the internal audit function and
is informed of any significant matters that come to the attention of the function when such matters
may affect the work of the external auditor so that the external auditor is able to consider the
implications of such matters for the audit engagement.

Taking Direct Assistance - Agreements & Where not to take Direct New Course – (J25R)
QNO--
Assistance.
610.100 Bhaskar CNO –SA 610.200 / 220

CA Mukul is the external auditor of Beige Ltd., a large company, engaged in the manufacturing of fast-moving
consumer (FMCG) goods. After assessing the internal audit function of the company, CA Mukul decided to
use the internal auditor of the company to provide direct assistance. In this context, what is meant by direct

assistance under relevant Standard on Auditing? Also comment whether prior to using internal auditor for
direct assistance for the purpose of audit, CA Mukul is required to obtain any written agreements or not. Give
examples of procedures in which CA Mukul shall not use an internal auditor to provide direct assistance.
Answer As per SA 610, “Using the work of Internal Auditor”, direct assistance refers to the use of internal auditors to
perform audit procedures under the direction, supervision and review of the external auditor.

Prior to using internal auditors to provide direct assistance for purposes of the audit, CA Mukul, the external
auditor shall:-

(a) Obtain written agreement from an authorized representative of the entity that the internal auditors
will be allowed to follow the external auditor’s instructions, and that the entity will not intervene in the
work the internal auditor performs for the external auditor and

(b) Obtain written agreement from the internal auditors that they will keep confidential specific matters
as instructed by the external auditor and inform the external auditor of any threat to their objectivity.

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