04 Aug How External Auditors Can Leverage Your Internal Audit Work
Does your company have an internal audit function? If so, you may be able to use your internal audit team to streamline financial reporting by external auditors. Guidance on how to facilitate this collaborative approach is included below:
Recognize the benefits
External auditors are not required to use internal auditors in any capacity, but collaboration between internal and external audit teams can be a win-win.
Collaboration can help reduce disruptions to normal business operations that sometimes happen during external audit fieldwork. Also, internal audit personnel may have information that is useful to the external auditor in obtaining an understanding of the entity and its environment and identifying and assessing risks of material misstatement.
Understand American Institute of CPA (AICPA) guidance
In 2014, the Auditing Standards Board (ASB) of the AICPA issued Statement on Auditing Standards (SAS) No. 128, Using the Work of Internal Auditors (SAS 128). This standard clarifies an external auditor’s responsibilities when using internal auditors.
SAS 128 differentiates between two types of assistance provided by the internal audit function. Specifically, external auditors may consider using internal auditors to:
- Obtain audit evidence
- Provide direct assistance under the direction, supervision, and review of the external auditor
One of the most significant changes in SAS 128 is the requirement for the internal audit function to apply a systematic and disciplined approach to planning, performing, supervising, reviewing, and documenting its activities. This includes having appropriate quality control policies and procedures.
If the external auditor determines that the internal audit function lacks a systematic and disciplined approach to its activities, the external auditor cannot use the work of the internal auditor in obtaining audit evidence.
Additionally, SAS 128 requires management (or other parties charged with governance) to provide a written acknowledgment that internal auditors providing direct assistance will be permitted to follow the instructions of the external auditor and that the entity will not interfere in the work the internal auditor performs for the external auditor.
Challenge the status quo
SAS 128 could change the role your internal auditors play on our external audit team. So, before your next audit, let us evaluate whether your internal audit function meets the requirements of SAS 128. If so, we can leverage our capabilities, making sure that next year’s fieldwork will run as smoothly and efficiently as possible.