Page 104 - DCOM509_ADVANCED_AUDITING

Unit 6: Internal and External Audit

3. Relying upon specific internal audit work: If as a result of his evaluation and appropriate Notes
interaction with internal auditor, the external auditor intends to rely upon specific internal
audit work, he should take into account the factors such as:
(a) Scope of internal auditor’s work and adequacy of related audit programmes used by
him;

(b) Examine whether the work of assistants was properly supervised, reviewed and
documented;
(c) Examine whether sufficient and appropriate evidence was obtained.

Thus, the degree of reliance that is placed by the external auditor on such work is a matter of
professional judgment.

Notes It may be noted that the report of the external auditor is his sole responsibility and
he cannot shove off this responsibility on internal auditor by relying upon his work.

Kamal Gupta, in his famous book “Contemporary Auditing” has elaborated about the
coordination among external auditor and internal auditor as follows:
“Having decided in principle that external auditor intends to rely upon the work of the internal
auditor, it is desirable that he ascertains the internal auditor’s tentative plan for the year and
discusses with him at as early stage as possible to determine areas where he considers that he
could rely upon the internal’s auditor work. Where internal audit work is to be a factor in
determining the nature, timing and extent of the external auditor’s procedures, it is desirable to
plan in advance the timing of such work, the extent of audit coverage, tests levels and proposed
methods of sample selection, documentation of the work performed and review and reporting
procedures.
Coordination with the internal auditor is usually more effective when meetings are held at
appropriate intervals during the year. It is desirable that the external auditor is advised of, and
has access to, relevant internal audit reports and in addition is kept informed, along with
management, of any significant matter that comes to the internal auditor’s attention and which
he believes may affect the work of the external auditor. Similarly, the external auditor should
ordinarily inform the internal auditor of any significant matters which may affect his work.”

Self Assessment

Fill in the blanks:
14. Internal audit and external audits are concerned with evaluation of …………. control
system.
15. The external auditor should assess the quality of work done by …………………. before
relying upon the work of the latter.

6.8 Internal Check and Internal Audit

Internal check is an important process of internal control system. Under the system of internal
check, it is ensure that the job performed by one employee gets checked, automatically by
another employee. No employee, alone, allowed handling transactions from beginning to end.

LOVELY PROFESSIONAL UNIVERSITY 99