the UNIVERSITY of GREENWICH 1 September 2009 L8b Audit and assurance J. E. Spencer-Wood Auditing and assurance Lecture 8b The Registered Auditor and the internal audit function ISA 610 (12/09) Using the Work of Internal Auditors

the UNIVERSITY of GREENWICH 2 September 2009 L8b Audit and assurance J. E. Spencer-Wood IA and the statutory auditor Common work Compliance  With controls, regulations and policies Substantiation  Of financial statement assertions

the UNIVERSITY of GREENWICH 3 September 2009 L8b Audit and assurance J. E. Spencer-Wood IA and the statutory auditor Different objectives (possibly) Statutory Auditor expresses an opinion on…  The ‘fair presentation’ (T&F – UK) of financial statements, and compliance with statutes and accounting standards (CA 06 and SSAP/FRS or IAS/IFRS – UK) Internal Auditor  Management's terms of reference –Strongly influenced by the Combined Code / COSO

the UNIVERSITY of GREENWICH 4 September 2009 L8b Audit and assurance J. E. Spencer-Wood IA and the statutory auditor (cont.) There can be a great area of useful overlap IA SA SA ISA 610 ‘Using the Work of Internal Auditors’

the UNIVERSITY of GREENWICH 5 September 2009 L8b Audit and assurance J. E. Spencer-Wood IA and the statutory auditor (cont.) AREAS OF OVERLAP IC systems review IC compliance testing Management (Accounting) Information Systems Same work, different objectives? Asset security Liability containment / completeness Verification Accounting systems CA 06 compliance (UK) Statutory, regulatory, policy compliance Analytical review Substantive work

the UNIVERSITY of GREENWICH 6 September 2009 L8b Audit and assurance J. E. Spencer-Wood IA and the statutory auditor (cont.) The statutory auditors will need to…  Decide whether to use the IA’s work  Determine the extent  Determine the adequacy for the purpose of the statutory audit

the UNIVERSITY of GREENWICH 7 September 2009 L8b Audit and assurance J. E. Spencer-Wood IA and the statutory auditor (cont.) Statutory Auditors will…  REVIEW  TEST  RELY ON (OR NOT) the work of the IA as  EVIDENCE

the UNIVERSITY of GREENWICH 8 September 2009 L8b Audit and assurance J. E. Spencer-Wood ISA 610 Reliance on IA does not reduce statutory responsibilities. The statutory auditor MUST fully understand and assess IA activities in planning evaluate IA if reliance is likely to be placed upon it to reduce testing

the UNIVERSITY of GREENWICH 9 September 2009 L8b Audit and assurance J. E. Spencer-Wood ISA 610 Adequacy considerationsAdequacy considerations Status of IAStatus of IA  Reports to highest management?  Objective? (that is, not bias)  Direct line position to audit committee?  No other responsibility?

the UNIVERSITY of GREENWICH 10 September 2009 L8b Audit and assurance J. E. Spencer-Wood Considerations Quality of IAQuality of IA  Staff skills and qualifications  Are IA standards in force?  Is there an ‘IA operational manual’ and an ‘IA charter’  Is IA used as a ‘training ground’?  Is work subject to supervision and review?

the UNIVERSITY of GREENWICH 11 September 2009 L8b Audit and assurance J. E. Spencer-Wood 1.To further independence of audit 2.Co-ordinate audit Internal-external 3.Review externally issued financial documents 4.Independent check over executive and operational management Audit Committees

the UNIVERSITY of GREENWICH 12 September 2009 L8b Audit and assurance J. E. Spencer-Wood Some corporate policies are to outsource non-core activities Catering, cleaning, internal audit… Audit firms offer this (assurance) service Considerations (where same firm undertakes statutory audit) Independence and credibility Staffing and skills Outsourcing of IA

the UNIVERSITY of GREENWICH 13 September 2009 L8b Audit and assurance J. E. Spencer-Wood Further reading ISA