SAS No. 25 Considering the Work of Internal Audit


Issued by Auditing Standards Committee in Taiwan on 5 October, 1993.


The responsibility to report on the financial statements rests solely with the auditor. Unlike the situation in which the auditor uses the work of other independent auditors, this responsibility cannot be shared with the internal auditors. Because the auditor has the ultimate responsibility to express an opinion on the financial statements, judgments about assessments of inherent and control risks, the materiality of misstatements, the sufficiency of tests performed, the evaluation of significant accounting estimates, and other matters affecting the auditor's report should always be those of the auditor.   

The auditor may find the results of the following procedures helpful in assessing the relevancy of internal audit activities:

  • Considering knowledge from prior-year audits
  • Reviewing how the internal auditors allocate their audit resources to financial or operating areas in response to their risk-assessment process
  • Reading internal audit reports to obtain detailed information about the scope of internal audit activities

When assessing the internal auditors' competence, the auditor should obtain or update information from prior years about such factors as—

  • Educational level and professional experience of internal auditors.
  • Professional certification and continuing education.
  • Audit policies, programs, and procedures.
  • Practices regarding assignment of internal auditors.
  • Supervision and review of internal auditors' activities.
  • Quality of working-paper documentation, reports, and recommendations.
  • Evaluation of internal auditors' performance.

The internal auditors' work may affect the nature, timing, and extent of the audit, including—

  • Procedures the auditor performs when obtaining an understanding of the entity's internal control.Since a primary objective of many internal audit functions is to review, assess, and monitor controls,the procedures performed by the internal auditors in this area may provide useful information to the auditor.
  • Procedures the auditor performs when assessing risk. The auditor assesses the risk of material misstatement at both the financial-statement level and the account-balance or class-of-transaction level. At the financial-statement level, the auditor makes an overall assessment of the risk of material misstatement. The entity's internal audit function may influence overall assessment of risk as well as the auditor's resulting decisions concerning the nature, timing, and extent of auditing procedures to be performed. At the account-balance or class-of-transaction level, the auditor performs procedures to obtain and evaluate audit evidence concerning management's assertions. The results of internal auditors' tests may provide appropriate information about the effectiveness of    controls and change the nature, timing, and extent of testing the auditor would otherwise need to perform.
  • Substantive procedures the auditor performs. Some procedures performed by the internal auditors may provide direct evidence about material misstatements in assertions about specific account balances or classes of transactions. The results of these procedures can provide evidence the auditor may consider in restricting detection risk for the related assertions.

In making judgments about the extent of the effect of the internal auditors' work on the auditor's procedures, the auditor considers—

  • The materiality of financial statement amounts—that is, account balances or classes of transactions.
  • The risk (consisting of inherent risk and control risk) of material misstatement of the assertions related to these financial statement amounts.
  • The degree of subjectivity involved in the evaluation of the audit evidence gathered in support of the assertions.

In performing the audit, the auditor may request direct assistance from the internal auditors. This direct assistance relates to work the auditor specifically requests the internal auditors to perform to complete some aspect of the auditor's work. When direct assistance is provided, the auditor should assess the internal auditors' competence and objectivity and supervise, review, evaluate, and test the work performed by internal auditors to the extent appropriate in the circumstances. The auditor should inform the internal auditors of their responsibilities, the objectives of the procedures they are to perform, and matters that may affect the nature, timing, and extent of audit procedures, such as possible accounting and auditing issues. The auditor should also inform the internal auditors that all significant accounting and auditing issues identified during the audit should be brought to the auditor's attention.

Effective date

This Statement is effective for audit of financial statements with fiscal years ending on or after 31 December, 1993.

  Address: 20th. F., No.17, Sec.1, Chengde Rd., Taipei, Taiwan Tel:886-2-2549-0549
Copyright(c) Accounting Research and Development Foundation in Taiwan