Use of Internal Auditor's work by an External Auditor

Use of Internal Auditors work by an External Auditor

External Audit is an critical function for both the company and the auditor. The audit procedure must be conducted in prescribed manner abiding by standards set for auditing. The Auditing and Assurance Standards Board of ICAI keeps on issuing "Implementation Guides" from time to time. Such implementation guides help auditors understand a standard better. It also provides guidelines related to practical problems faced by auditors in practical implementation of audit standards.

Assurance Standards Board of ICAI has recently published Implementation Guide focused on Auditing (SA) 610 (Revised), “Using the work of Internal Auditors”.

Using the work of Internal Auditors (Auditing (SA) 610 (Revised)):

This standard specifically deals with use of Internal Audit functions by an external auditor. The standard provides conditions and safeguards for the external auditor in this regard.

Applicability of the standard:

The guidelines prescribed under this Standard are applicable only in cases where:

  • The entity has an internal audit function.
  • The responsibility and activities of the internal audit function are relevant to the audit.
  • The External Auditor is not prohibited fully or partly under any law or regulation from using the work of internal auditor and provide direct assistance.


Steps in using Internal Auditors work for External Audit:

Below steps must be taken by the External Auditor to determining whether internal auditor can provide direct assistance in the external audit processor.

  1. The External Auditor must evaluate internal audit function from following point of views:
    • Objectivity in Audit process
    • Level of competence of internal auditor
  2. Determining the nature and extent of work that can be assigned to internal auditors for providing direct assistance.
  3. The external auditor needs to obtain written representations from the entity and the internal auditors in this regard. The external auditor also needs to direct, supervise and review the work of internal auditors.


Functions that can be performed by an Internal Auditor in audit process:

  • Testing of operative effectiveness of controls.
  • Physical verification of inventory, fixed assets, spares etc.
  • Substantive procedures involving limited judgement. Example: test of details,
  • Invoice/ agreement/MOU/prospectus documentation etc.
  • Tracing transactions through the information system relevant to financial reporting.
  • Testing of compliance with regulatory requirements.

Functions that should be performed directly by the External Auditor:

  • Areas that involve more judgement.
  • Areas that have been assessed higher risk of material misstatement at assertion level.



In cases where assistance of Internal Auditor is used, the External auditor needs to document following:

  1. The evaluation of the existence and significance of threats to the objectivity of the internal auditors, and the level of competence of the internal auditors used to provide direct assistance.
  2. The basis for the decision regarding the nature and extent of the work performed by the internal auditors.
  3. Who reviewed the work performed and the date and extent of that review in accordance with SA 230, “Audit Documentation”.
  4. The written agreements obtained from an authorised representative of the entity and the internal auditors mentioned under paragraph 2.23 and 2.24.
  5. The working papers related to planning and procedures followed in audit prepared by internal auditors who provided direct assistance on the audit engagement.


Click Here to download "Implementation Guide" for this audit standard.


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Financial Management