## Reliance on Internal Auditor's Work

### Core Principle

The external auditor bears sole and undivided responsibility for the audit opinion. Use of internal audit work does not reduce this responsibility — not even partially.

If the external auditor relies on faulty internal audit work, the external auditor is liable, not the internal auditor.

### Before Relying on Internal Audit Work — Checklist

#### Step 1: Decide whether to use internal audit

Determine if internal audit work can be used at all, and if so, in which areas and to what extent.

#### Step 2: Assess adequacy (for using the internal audit function)

Evaluate three dimensions:

Dimension	What to Assess
Objectivity	Organisational status; policies that protect independence
Competence	Level of technical competence of the internal audit function
Systematic approach	Whether a disciplined methodology with quality controls is applied

#### Step 3: Direction, supervision, and review (for direct assistance)

If internal auditors are providing direct assistance, the external auditor must properly direct, supervise, and review their work.

### Summary Decision Flow

```

Can internal audit work be used?

└─ No → Perform procedures independently

└─ Yes → Is the work adequate?

└─ No → Supplement with own procedures

└─ Yes → Use it, but remain responsible for the opinion

```

Worked example

### Example 1

PQR & Co. – MGM Ltd. Case:

Facts: Engagement partner used the internal auditor's debtor ageing report without independent verification (due to time shortage). Post-issuance, it was found the ageing was done incorrectly, resulting in wrong provisions.

Contention tested: Engagement partner blamed internal auditor.

Verdict: Contention is wrong. The external auditor's responsibility for the audit opinion is not reduced by reliance on internal audit work. PQR & Co. should have:

1. Determined whether and to what extent internal audit work could be used.

2. Assessed adequacy — objectivity, competence, and systematic approach of the internal audit function.

3. Independently verified the ageing, or at minimum applied analytical procedures to corroborate it.

Lesson: Time pressure is NOT a valid justification for skipping verification of internal audit findings.

⚠️ Common exam mistakes

Assuming that by using internal audit work, external auditor's liability is diluted — it is not
Accepting internal audit reports at face value without assessing objectivity, competence, and systematic approach
Not directing and reviewing internal auditors when they provide direct assistance
Using internal audit work in areas where the function lacks independence or competence

Reference: Key Requirement: External auditor has sole responsibility for the audit opinion; that responsibility is not reduced by use of internal audit work — SA 610 – Using the Work of Internal Auditors (ICAI)

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Reliance on Internal Auditor's Work – External Auditor's Sole Responsibility

Worked example

⚠️ Common exam mistakes