CPA Exam — AUDEthics, Professional Responsibilities, and General PrinciplesMedium
A CPA firm is performing an audit. The client's internal audit function is deemed effective and provides reliable information. In this scenario, how should the external auditor utilize the work of the internal auditors?
- AUse the internal audit work to modify the nature, timing, and extent of the external audit procedures.
- BCompletely rely on the internal audit work to reduce the scope of the external audit.
- CDisregard the internal audit work, as external auditors must perform all procedures independently.
- DUse the internal auditors to perform direct assistance on all substantive testing procedures.
Show answer & explanationAnswer & explanation
Correct answer: A. Use the internal audit work to modify the nature, timing, and extent of the external audit procedures.
When an internal audit function is assessed as effective, the external auditor can use its work to reduce the scope of their own procedures. This involves modifying the nature, timing, and extent of external audit work, but not complete reliance or delegating primary responsibilities.
Why the other options are wrong
- B. Complete reliance is never appropriate, as the external auditor retains ultimate responsibility for the audit opinion.
- C. Disregarding effective internal audit work would be inefficient and not in line with professional standards.
- D. Using internal auditors for direct assistance is possible, but they cannot perform procedures that involve significant judgment or which are critical to the audit opinion.
Using Work of Internal Auditors
External auditors may use the work of an effective internal audit function to obtain audit evidence or to provide direct assistance in performing audit procedures.
- External auditor must evaluate the competence and objectivity of internal audit.
- External auditor remains solely responsible for the audit opinion.
- Cannot rely completely on internal audit work; must perform some independent procedures.
Memory trick: Internal audit, a helpful hand, but external judgment must still stand.