True / False: The internal auditor can participate in the external auditor's decisions when the decision is based in part or in whole on the internal auditor's work?
False
The internal auditor cannot participate in any aspect of the audit requiring judgment (decisions, judgments, assessments, or any portion of the auditor's report) even when the internal auditor's work is used.
True / False: When the external audit team has verified that the internal auditor's work can be trusted, then the work performed by the internal auditor is sufficient evidence for all accounts.
False
Despite impeccable work by the internal auditor, the audit team must still perform tests of details on accounts with a high risk of material misstatement or high degree of subjectivity.
What types of accounts tend to be high risk of material misstatement, or have a high degree of subjectivity?
assertions about
** the valuation of assets or liabilities involving significant accounting estimates
** related party transactions
** contingencies
** subsequent events
True / False: When the external audit team has verified that the internal auditor's work can be trusted, then the work performed by the internal auditor is sufficient evidence for assertions related to less material FS amounts (tests of details may not be needed).
True
What types of FS accounts are typically less material where the internal auditor's work may be sufficient evidence?
the existence of cash
prepaid assets
fixed asset additions
Who decides which accounts are high or low risk - the external auditor or the internal auditor?
The external auditor. The internal auditor plays no role in this determination.
True / False: The external auditor may request that the internal auditor perform specific tasks to aid in the conduct of the audit.
True, but the work must be verified by the external auditor.
What are the primary responsibilities of the external auditor with regard to assessing the internal auditor's work?
Obtain an understanding of the internal audit function
Evaluate the internal audit skills for competency & objectivity
What items are considered when assessing the objectivity of the internal auditor
scope of activities
procedures used
access to records
does it incorporate quality control
to whom does the internal auditor report (the higher the level, the more objectivity)
does the auditor use a systematic & disciplined approach (procedures, standards) [needed if using the IA's work, but not if IA is merely providing direct assistance]
What items are considered when assessing the competence of the internal auditor?
The internal auditor's prior experience
Their prior evaluations
And management's feedback
Quality of the working paper documentation
The internal audit function is considered to be part of the __________ component of internal control
monitoring
Because the internal auditors often review and assess an entity's controls
True / False: The work of the internal auditor was verified and then used as part of the audit evidence; thus, the internal auditor is partially responsible for the audit report.
False
The external auditor is the only one who is responsible for the audit report.
True / False: The entity may use the work of a specialist to assist the entity in the preparation of the FS?
True
A person who is an expert in a field other than accounting or auditing, who provides their service in the creation of the FS, or to assist with the audit, is known as a _______.
Specialist
An actuary, appraiser, attorney, or engineer would be utilized in an audit as a _________.
Specialist
True / False: The audit partner must have a sufficient understanding of the specialist's work that s/he can evaluate the adequacy of said work.
True
True / False: The specialist must maintain the same level of independence as the external auditor in order for his/her work to be used.
False
The specialist must demonstrate objectivity with regard to the data and situation, but not independence.
What can the auditor do to evaluate the adequacy of the specialist's work? (Don't need to know all)
Review the working papers and reports
Corroborate the work
** observe the work performed by the specialist
** examine published data from authoritative sources
** confirm relevant matters with third parties
** perform detailed analytical procedures
** reperform calculations
Get a 2nd opinion
Discuss the specialist's report with management
The specialist's finding indicates that the FS are not in conformity with GAAP. How does this affect the auditor's opinion?
Issue a qualified or adverse opinion based on the pervasiveness of the issue
At the conclusion of the audit, there remains an unresolved difference between the specialist's findings and the FS. Does this affect the auditor's opinion?
Yes, this is a scope limitation
The auditor must issue either a modified or disclaimer of opinion depending on the pervasiveness of the issue
At the conclusion of the audit, there remains an unresolved difference between the auditor and the specialist. Does this affect the auditor's opinion?
Yes, this is a scope limitation
The auditor should issue either a modified or disclaimer of opinion depending on the pervasiveness of the issue.
When should the auditor reference the specialist's work?
When a modified opinion is made. The specialist is identified, but the reference to the specialist must clearly state the auditor still retains full responsibility for the audit opinion.
An unmodified opinion need not reference the specialist.
True / False: The external auditor may not share responsibility with the internal auditor regarding assessment of inherent risk, but may share regarding assessment of control risk.
False
The external auditor cannot share responsibilities with the internal auditor.
The work of the internal auditor may affect which aspects of the external auditor's work?
procedures performed in obtaining an understanding of internal control
Procedures performed in assessing the risk of material misstatement
Substantive procedures performed in gathering direct evidence
The external audit team has verified that the internal auditor's work can be trusted. The internal auditor may now provide assistance with which of the following: (1) obtaining an understanding of internal control, (2) performing tests of controls, or (3) performing substantive tests
