TWSA610 Using the Work of Internal Auditors

Status

Revised by Auditing Standards Committee in Taiwan on 4 October, 2022

Summary

This Standard deals with the auditor’s responsibilities if using the work of internal auditors. This includes:

(a)  Using the work of the internal audit function in obtaining audit evidence and

(b)  Using internal auditors to provide direct assistance under the direction, supervision and review of the external auditor.

The objectives of the auditor, where the entity has an internal audit function and the auditor expects to use the work of the function to modify the nature or timing, or reduce the extent, of audit procedures to be performed directly by the auditor, or to use internal auditors to provide direct assistance, are:

(a)   To determine whether the work of the internal audit function or direct assistance from internal auditors can be used, and if so, in which areas and to what extent;

(b)   If using the work of the internal audit function, to determine whether that work is adequate for purposes of the audit; and

(c)   If using internal auditors to provide direct assistance, to appropriately direct, supervise and review their work.

The auditor shall determine whether the work of the internal audit function can be used for purposes of the audit by evaluating the following:

(a)   The extent to which the internal audit function’s organizational status and relevant policies and procedures support the objectivity of the internal auditors;

(b)   The level of competence of the internal audit function; and

(c)   Whether the internal audit function applies a systematic and disciplined approach, including quality control.

As a basis for determining the areas and the extent to which the work of the internal audit function can be used, the auditor shall consider the nature and scope of the work that has been performed, or is planned to be performed, by the internal audit function and its relevance to the auditor’s overall audit strategy and audit plan.

If the external auditor plans to use the work of the internal audit function, the external auditor shall discuss the planned use of its work with the function as a basis for coordinating their respective activities. The external auditor also shall read the reports of the internal audit function relating to the work of the function that the external auditor plans to use to obtain an understanding of the nature and extent of audit procedures it performed and the related findings.

The auditor shall perform sufficient audit procedures on the body of work of the internal audit function as a whole that the auditor plans to use to determine its adequacy for purposes of the audit, including evaluating whether:

(a)  The work of the function had been properly planned, performed, supervised, reviewed and documented;

(b)  Sufficient appropriate evidence had been obtained to enable the function to draw reasonable conclusions; and

(c)  Conclusions reached are appropriate in the circumstances and the reports prepared by the function are consistent with the results of the work performed.

If the auditor plans to use internal auditors to provide direct assistance on the audit, the auditor shall evaluate the existence and significance of threats to objectivity and the level of competence of the internal auditors who will be providing such assistance.

In determining the nature and extent of work that may be assigned to internal auditors and the nature, timing and extent of direction, supervision and review that is appropriate in the circumstances, the auditor shall consider:

(a)  The amount of judgment involved in planning and performing relevant audit procedures; and evaluating the audit evidence gathered;

(b)  The assessed risk of material misstatement; and

(c)  The auditor’s evaluation of the existence and significance of threats to the objectivity and level of competence of the internal auditors who will be providing such assistance.

Prior to using internal auditors to provide direct assistance for purposes of the audit, 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.

The auditor shall direct, supervise and review the work performed by internal auditors on the engagement in accordance with TWSA220. In so doing:

(a)  The nature, timing and extent of direction, supervision, and review shall recognize that the internal auditors are not independent of the entity and be responsive to the outcome of the evaluation of the factors in paragraph 25; and

(b)  The review procedures shall include the auditor checking back to the underlying audit evidence for some of the work performed by the internal auditors.

The direction, supervision and review by the auditor of the work performed by the internal auditors shall be sufficient in order for the auditor to be satisfied that the internal auditors have obtained sufficient appropriate audit evidence to support the conclusions based on that work.

Effective date

This Standard is effective from 15 December, 2022.
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