¶ … large organizations, the existence and effectiveness of its internal audit function comes into question. Not only the internal audit department should exist but it shall work effectively. An effective internal audit department can serve as the backbone of an organization's success. The International Accounting Standards Board (IASB) keeps on revising its standards to make sure that external and internal auditors of an organization carry out their duties effectively. The board recently revised the Internal auditing standard that serves the purpose of assisting the external auditor's in using the work of the internal auditors. Though external auditors are mainly concerned with auditing company's financial statements but lack of time and in some cases lack of resources raises a question as to their audit quality. In order to ensure that external audit is carried out effectively, the IAASB realized the importance of internal audit and how can the internal audit be an important tool in serving the purposes of the external audit. The edge that an internal audit function always has over external audit function is that its scope regarding each of the organization's function is wide enough to allow it to have a detailed scrutiny of a particular organizational function. The importance of internal audit function is increasing day by day in every organization because of the realization of management that they can not only assist in reducing the extent of the work of the external auditor, but it also reduces the organization from the hassle of providing large chunks of data to carry out their audit work effectively.
There is no doubt in the fact that internal audit function is one of the major components of corporate governance. The management is allowed to have a deeper insight into business issues by just having a quick review of the internal audit reports which summarize issue. This also saves an organization from the fear of major frauds, as the control testing done by internal auditors does not allow the organization to have weak control in any area or department. The internal audit function ensures that controls exist and the existing controls are enough to counter any financial and non- financial risks. The internal audit assists by making recommendations to the organizations on how and where to alter their controls to have a better control environment in the entity.
Major issues raised in IAASB's ED
The IAASB conducted the ED with the purpose of clarifying the ambiguity that exists with regard to ISA 610 "Using the work of Internal Auditor." The IAASB's concern was due to the fact that the standard created confusion with respect to the external auditor's use of the work of internal auditor. The first issue addressed was the fact that in many parts of the world, internal auditors assist the external auditors with respect to the areas concerned under their direct supervision. Whereas the standard states that it does not deal with such instances. The ambiguity existed regarding whether the ISA supports the use of the internal audit function by external auditor or not. The IAASB was concerned about this fact as the direct interaction of internal and external auditors to the extent of working of internal auditor's in the supervision of the external auditor could impair the independence of the external auditor due to the fact that internal audit function is a part of the entity's management and is not independent of the entity. Thus IAASB discussed on how relevant controls can be implemented by the external auditors to ensure their independence with respect to the audit of the organization's financial statements. The IAASB intends to establish the need for the external auditor to seek assistance from the internal audit function only in concerned areas. On the other hand, in some jurisdictions the local law restricts the external audit function from using the work of the internal auditor, so the IAASB clarifies in its Exposure Draft that complying with such local laws by the external audit function still makes the auditor compliant with the requirements of ISA 610. The IAASB further explains that external auditors shall not be forced in any way to use the work of the internal audit function. Its solely the decision of the external auditor as to whether the use of internal auditor's work would be useful in enhancing the audit effectiveness.
The IAASB further discusses that the external auditor is responsible to discuss the scope and timing of the use of the work of internal audit function with those charged with governance, where it decides that the use of the work of internal auditor is...
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