Your firm is the newly appointed external auditor to a large company that sells, maintains and leases office equipment and furniture to its customers and you have been asked to co- operate with internal audit to keep total audit costs down. The company wants the external auditors to rely on some of the work already performed by internal audit. The internal auditors provide the following services to the company: (i) A cyclical audit of the operation of internal controls in the company‘s major functions (operations, finance, customer support and information services); (ii) A review of the structure of internal controls in each major function every four years; (iii) An annual review of the effectiveness of measures put in place by management to minimise the major risks facing the company. During the current year, the company has gone through a major internal restructuring in its information services function and the internal auditors have been closely involved in the preparation of plans for restructuring, and in the related post-implementation review. Required: Describe the information your firm will seek from the internal auditors in order for you to determine the extent of your reliance

Information required

(i) The information required to determine the extent of external audit reliance on internal audit‘s will be:

– Internal audit‘s systems documentation (the work on information systems and finance may include documentation of the company‘s accounting and internal control systems);
– Internal audit‘s planning documentation, which may cover a risk analysis, tests of controls and substantive procedures;
– The results of tests of control and substantive procedures;
– Documentation on the four-year review of internal controls, particularly in relation to the finance and information services functions.

(ii) The external auditors should ask to see all documentation relating to the work performed by internal audit on information services restructuring during the year because the external auditor‘s assessment and testing of systems will be split into two parts, pre- and post-restructuring.

(iii) Other documentation requested will include internal audit‘s operating procedures manuals and documentation relating to the recruitment, training and development of internal audit staff, and management responses to internal audit recommendations. This information is required to enable the external auditor to form an opinion on the competence and effectiveness of the internal audit function.


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