Using the Work of Internal Auditors

Objective

Objective

To revise ISA 610, Using the Work of Internal Auditors to reflect developments in the internal auditing environment and changes in practice regarding the interactions between the external and internal auditors.

Background

During the redrafting of the extant ISA 610,Considering the Work of Internal Audit a number of respondents drew the IAASB's attention to the need to revise the ISA to better reflect the current internal auditing environment. The IAASB took these comments into account in developing its future strategy, and therefore included a proposal to revise the clarified ISA 610 in the IAASB Strategy and Work Program, 2009-2011.

The IAASB approved a project proposal at its March 2009 meeting. As indicated, key issues are likely to include the following:

  • Whether and how the internal auditors' knowledge of the organization and expertise in risk and control can be used by the external auditors to achieve greater efficiency and effectiveness in the conduct of the audit.
  • Clarification on the question of how internal audit fits within the concept of internal control insofar as the internal control requirements in ISA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment and ISA 330,The Auditor's Responses to Assessed Risks.
  • Whether it would be appropriate to broaden the scope of the ISA beyond the consideration of whether the external auditor should use the work of internal auditors to include considerations relating to how internal and external auditors should cooperate during the conduct of the audit.
  • Whether the scope of the ISA should be expanded to include circumstances when internal auditors are used to provide direct assistance to the external auditor to carry out audit procedures.

     

Task Force progress / Board discussions to date

At the March 2009 IASSB meeting, a project proposal to revise the clarified ISA 610 was approved by the IAASB.

The IAASB Consultative Advisory Group (CAG) also discussed the project proposal at its March 2009 meeting.

At its September 2009 meeting, the IAASB considered issues to be addressed in this project, including the following:

  • The definition of internal audit function.
  • The relationship between internal auditing and the entity's internal control in particular how internal auditing may influence the auditor's risk assessments.
  • The factors that influence the auditor's judgments on the extent of use of internal audit work.
  • Determining how internal audit work may be used to achieve greater efficiency and effectiveness in the external audit.
  • The nature, timing and extent of the work necessary to support the external auditor's decision to use specific internal audit work.
  • The external auditor's assessment of the competence and objectivity of the internal audit function.
  • Expansion of the scope of ISA 610 to address instances of internal audit staff providing direct assistance to the auditor.
  • Possible implications arising from national laws and regulations.


The IAASB CAG also discussed a number of these issues at its September 2009 meeting.

At its March 2010 meeting, the IAASB considered first drafts of the proposed revised ISA 315 and ISA 610. Issues discussed by the IAASB include the following:

  • Direct Assistance
  • Using the Work of the Internal Audit Function
  • Inquiry of the Internal Audit Function
  • Impact Analysis Consideration

The IAASB CAG also discussed these issues and the first drafts of the proposed revised ISA 315 and ISA 610 at its March 2010 meeting.

At its June 2010 meeting, the IAASB considered revised drafts of the proposed revised ISA 315 and ISA 610. Issues discussed by the IAASB include the following:

  • Direct Assistance
  • Using the Work of the Internal Audit Function
  • Reading the Relevant Reports of the Internal Audit Function
  • Provisional Effective Date
  • Impact Analysis Considerations

The IAASB approved the proposed revised ISAs for exposure with a comment deadline of November 15, 2010.

At its March 2011 meeting, the IAASB was provided with an overview of the significant issues raised by respondents on the Exposure Draft (ED) of proposed revised ISAs 315 and 610. The IAASB considered and provided preliminary views on the following:

  • Using the Work of the Internal Audit Function
  • Direct Assistance
  • Balance between Requirements and Application and Other Explanatory Material

The IAASB CAG also discussed these issues at its March 2011 meeting.

At its June 2011 meeting, the IAASB undertook a full review of respondents' comments to the ED. Significant issues discussed by the IAASB include the following:

  • Using the Work of the Internal Audit Function
  • Using Internal Auditors to Provide Direct Assistance on the Audit
  • Inquiries by the External Auditor of Appropriate Individuals Within the Internal Audit Function
  • Reading Reports of the Internal Audit Function
  • Audit Risk Model, Definitions, and How the Internal Audit Function and Internal Auditors Can Be Used
  • Effective Date
  • Impact Analysis

The IAASB also considered drafts of proposed revised ISAs 315 and 610.

The IAASB has concluded its deliberations on requirements and guidance that specify the conditions and establish responsibilities of the external auditor if the external auditor intends to use internal auditors to provide direct assistance during the audit at it December 2011 meeting. The IAASB intends to incorporate this material in ISA 610 (Revised) after the International Ethics Standards Board for Accountants (IESBA) concludes its deliberations on its February 2012 exposure draft of proposed changes to the definition of “engagement team” in the Code of Ethics for Professional Accountants (IESBA Code). The IESBA exposure draft proposes to resolve a perceived inconsistency between the ISAs and the IESBA Code regarding the ability of external auditors to use internal auditors to provide direct assistance. The Basis for Conclusions explains the IAASB’s deliberations in revising ISA 610 and ISA 315.

 

 At its December 2012 meeting, in light of comments received on the International Ethics Standards Board for Accountants’ (IESBA) exposure draft of a proposed revised definition of the term "engagement team," the IAASB considered limited amendments to the material dealing with the use of internal auditors to provide direct assistance on the external audit (Direct Assistance) previously approved for inclusion in ISA 610 (Revised), Using the Work of Internal Auditors.

 

At it's February 2013 meeting, the IAASB approved for issue ISA 610 (Revised 2013), Using the Work of Internal Auditors. ISA 610 (Revised 2013) now includes material addressing the external auditor’s responsibilities if using internal auditors to provide direct assistance under the direction, supervision and review of the external auditor. The IAASB also approved related conforming amendments to the definition of “engagement team” for purpose of alignment with the International Ethics Standards Board for Accountants’ (IESBA) revised definition of the term in the IESBA’s Code of Ethics for Professional Accountants, and conforming amendments to other ISAs

 

Next Steps

The material on direct assistance in ISA 610 (Revised 2013) is effective for audits of financial statements for periods beginning on or after December 15, 2014.