The International Auditing and Assurance Standards Board (IAASB) has issued a new rule governing external auditors’ use of internal auditors’ work. ISA 610 (Revised), “Using the Work of Internal Auditors,” sets specific requirements for determining whether internal audit work can be used by external auditors, and if so, in which areas and to what extent. Internal auditors should be aware that when their work is used by external auditors following the new standard, the external auditor will verify whether or not the work is adequate by evaluating internal audit independence, policies, procedures, competence, and whether internal audit “applies a systematic and disciplined approach, including quality control.”
External auditors will read internal audit reports relating directly to their audit, and they will also be required to perform audit procedures on "the body of work of the internal audit function as a whole” to evaluate whether:
- Internal audit work has been properly planned, performed, supervised, reviewed, and documented.
- Sufficient appropriate evidence has been obtained to enable internal audit to draw reasonable conclusions.
- Conclusions are appropriate in the circumstances.
- Internal audit reports are consistent with the results of the work performed.
Audit committees may soon be hearing more from the external auditors about internal audit than ever before. When external auditors plan to use the work of internal audit, they will be required to discuss with those charged with governance how they plan to use the internal audit work. The nature and extent of external audit work will be responsive to the amount of judgment involved in internal audit work, the level of competence of internal audit, the assessed risk of material misstatement, and the extent to which internal audit’s organizational status, policies, and procedures support objectivity. In assessing internal audit work, some work will be reperformed by external auditors. Click here to download the revised ISA 610