# SA 610 – Using the Work of Internal Auditors

## Internal Audit Function (IAF)

A function of the entity that performs consulting activities to evaluate and improve the effectiveness of the entity's:

### Activities Relating to Governance

The Internal Auditor (IA) assesses the governance process in achieving its objectives.

### Activities Relating to Risk Management

The IA assists the entity by identifying and evaluating significant risks.

### Activities Relating to Internal Control

Evaluation of internal control.
Examination of financial and operating information.
Review of operating activities.
Review of compliance with L&R.

## Scope of SA 610

SA 610 covers:

Using the work of IAF in obtaining audit evidence.
Using IAs to provide direct assistance under the direction, supervision and review of the External Auditor (EA).

## External Auditor's Responsibility

EA has SOLE responsibility for the audit opinion.
This responsibility is not reduced by using the IAF or using IAs for direct assistance — as IAs are not independent of the entity.

## Objectives of EA (Where IAF Exists)

1. Determine whether the work of IAF or direct assistance from IAs can be used.

2. If using IAF's work, determine whether it is adequate for the audit.

3. If using IAs for direct assistance, appropriately Direct, Supervise & Review their work.

## Evaluating Whether IAF's Work Can Be Used

Three criteria — all must be met; if any one fails, work CANNOT be used:

1. The extent to which the IAF's organizational status, policies and procedures support objectivity of IAs.

2. Level of competence of the IAF.

3. Whether the IAF applies a systematic and disciplined approach (including QC).

### Objectivity – Factors for EA's Evaluation

Objectivity is the ability to perform tasks without bias, conflict of interest, or undue influence. Factors:

Whether IAF's organizational status supports objectivity.
Whether TCWG oversee employment decisions of IAF.
Whether there are restrictions placed on IAF by management or TCWG.
Whether IAF is free of conflicting responsibilities.

### Competence – Factors for EA's Determination

Factors:

Whether IAF is adequately and appropriately resourced relative to the entity's size and nature.
Whether established policies exist for hiring, training, and assigning IAs.
Whether IAs have adequate technical training in audit.
Whether IAs possess required knowledge of the entity's FR and AFRF.

### Objectivity & Competence as a Continuum

The more the IAF's organizational status supports IA objectivity AND the higher the level of competence, the more likely the EA can use the IAF's work.
However, strong organizational status (supporting objectivity) cannot compensate for lack of sufficient competence — and vice versa.

### Systematic and Disciplined Approach

Factors:

Existence, adequacy, and use of documented IA procedures.
Whether IAF has appropriate quality control policies and procedures.

## Nature & Extent of IAF Work That Can Be Used

The EA considers the nature and scope of IAF's work. Work that can be used includes:

Tests of operating effectiveness of controls.
Substantive procedures involving limited judgment.
Tracing transactions through the financial reporting information system.

## Using the Work of IAF – Process

Discussion and Coordination with the IAF.
The EA shall read the reports of IAF (the work the EA plans to use) to obtain an understanding of the nature and extent of procedures performed and the findings.

Worked example

### Example 1

Example 1 (Three-Criteria Evaluation): EA evaluates the IAF of ABC Ltd. The IAF: (a) reports administratively to the CFO with no TCWG oversight (weak objectivity), (b) has qualified CAs and CIAs (high competence), (c) follows documented procedures (systematic approach). Despite criteria 2 and 3 being satisfied, criterion 1 fails — EA cannot use IAF's work. Strong competence cannot compensate for lack of objectivity.

### Example 2

Example 2 (Areas Where IAF Work Can Be Used): ABC Ltd's IAF tests operating effectiveness of purchase authorization controls and traces sample sales transactions through the ERP. After determining IAF meets all three criteria, the EA can use this work — these involve limited judgment and are typical areas where IAF work is appropriate.

### Example 3

Example 3 (Direct Assistance): EA uses two internal auditors to assist with inventory count observation. The EA must direct them (briefing), supervise the count, and review their working papers — and remains solely responsible for the audit opinion.

### Example 4

Example 4 (Areas NOT Suitable): Significant assertions like fair valuation of unlisted investments or going concern conclusions involve high judgment — work of IAF is not used in these areas. The EA must perform these procedures himself.

⚠️ Common exam mistakes

Believing the EA's responsibility is reduced when relying on IAF work — it is not. EA has sole responsibility for the opinion.
Compensating poor objectivity with high competence (or vice versa) — both must independently be assessed adequate.
Using IAF's work in areas of significant judgment — only areas of limited judgment are appropriate.
Forgetting that IAs are NOT independent of the entity — hence their work cannot replace EA's work.
Failing to direct, supervise, and review IAs when they provide direct assistance.

Reference: SA 610 — SA 610 – Using the Work of Internal Auditors

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SA 610 - Using the Work of Internal Auditors

Worked example

⚠️ Common exam mistakes