Lesson: Internal Audit Function

In this lesson, the internal audit function is explored in detail. The first topic discussed is assessing the competence of a client's internal audit function, where factors such as compliance with professional internal auditing standards, educational background, professional certifications, and quality of audit plans play a crucial role. The objectivity of the client's internal audit function is also covered, with emphasis on organizational reporting structure and policies prohibiting work relationships with key management positions. The lesson then details when and how the internal audit function can assist the external auditor, highlighting the importance of supervision, review, evaluation, and testing of the work performed by the internal audit team. The difference between relying on internal audit's tests and not relying on their assessments of control or inherent risk is clarified, emphasizing that the external auditor must make assessments based on the work provided by the internal audit team. In conclusion, the lesson highlights subjective areas where external auditors should exercise caution when relying on internal audit functions, such as estimates, materiality, valuation, and existence of contingencies.