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SA 610 — Using the Work of Internal Auditors

Think of SA 610 as answering one practical question: Can the external auditor piggyback on the work already done by the company's own internal audit team? The answer is yes — but with strict conditions, and the external auditor never gets to escape responsibility for the final audit opinion. That remains 100% theirs.

When a company like Rajesh & Co. Pvt. Ltd. has a strong internal audit department that has already tested controls, vouched transactions, and reviewed branches, the external auditor doesn't have to duplicate all of that effort. SA 610 provides the framework to decide whether to use that work, how much of it to use, and how to test whether it's actually reliable. The standard focuses on two things: (a) using the internal auditor's work (their reports, findings, documentation) and (b) using internal auditors to provide direct assistance — actually helping the external auditor perform audit procedures. Note: direct assistance is permitted only if law or regulation does not prohibit it.

To decide whether internal audit work can be relied upon, the external auditor must evaluate three things. First, objectivity — does the internal audit function report to those charged with governance (like the Audit Committee) rather than to management? If Ms. Iyer, the internal auditor, reports directly to the CFO, her independence is questionable. Second, technical competence — does the team have the qualifications and experience to do the work? Third, due professional care — is their work properly planned, supervised, reviewed, and documented? Even after ticking all three boxes, the external auditor must still test a portion of the internal auditor's work to confirm it is adequate. The higher the risk of an area, the less the external auditor should rely on internal audit and the more direct work they must do themselves. SA 610 also makes clear that the external auditor cannot use internal auditors — whether their work or direct assistance — for procedures involving significant judgment, such as assessing going concern or evaluating complex estimates. Those stay with the external auditor, always.

📊 Worked example

Example 1 — Deciding how much to rely on internal audit work

Setup: Mr. Sharma is the external auditor of Bharat Retail Ltd. The company's internal audit team has tested ₹4,80,00,000 (₹4.8 crore) worth of purchase transactions across 12 branches during the year. Mr. Sharma wants to know whether he can rely on their work for the purchases cycle.

Step 1 — Assess objectivity: Internal audit reports to the Audit Committee. ✔ Objective.

Step 2 — Assess competence: Team has 3 Chartered Accountants and follows a documented audit program. ✔ Competent.

Step 3 — Assess due professional care: Work papers are properly referenced, reviewed by the Chief Internal Auditor, and exceptions are followed up. ✔ Adequate.

Step 4 — Determine coverage to re-test: Since purchases is a moderate-risk area, Mr. Sharma decides to independently re-test 20% of the transactions the internal team covered.

Re-test coverage = 20% × ₹4,80,00,000 = ₹96,00,000 (₹96 lakh)

Step 5 — Re-test result: Mr. Sharma finds no material errors in his re-test. He concludes internal audit work is reliable and reduces his own planned sample for this area accordingly.

Final answer: Mr. Sharma can use the internal audit work but must document his evaluation and re-testing. He still signs the audit opinion solely on his own responsibility.

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Example 2 — Area where reliance is NOT permitted

Setup: The same company has a going concern assessment prepared partly by the internal audit team at the request of management. Mr. Sharma considers whether to accept this as audit evidence.

SA 610 prohibits using internal audit work (or direct assistance) where significant judgment is required.

Going concern assessment involves judgment on future cash flows, management plans, and uncertainties — squarely a high-judgment area.

Conclusion: Mr. Sharma cannot rely on the internal audit's going concern work. He must independently obtain and evaluate evidence — management projections, bank facilities, order books — and form his own conclusion.

Final answer: Zero reliance permitted here. Mr. Sharma performs the going concern assessment himself entirely.

⚠️ Common exam mistakes

  • Students write that the external auditor can fully delegate work to internal auditors. Wrong — the external auditor retains sole responsibility for the audit opinion and can never fully transfer it. Reliance only reduces the extent of the external auditor's own procedures.
  • Mixing up 'using internal audit work' vs. 'using internal auditors for direct assistance'. These are two distinct concepts under SA 610. Work means using their existing reports/findings; direct assistance means the internal auditor physically helps the external auditor perform procedures. The conditions and safeguards differ.
  • Forgetting that direct assistance is prohibited for high-judgment areas. Don't say direct assistance can be used for going concern, fair value estimates, or related-party judgments — SA 610 explicitly bars this.
  • Skipping the re-testing step in exam answers. Even when reliance is decided, the external auditor must test a portion of the internal audit work to verify it. Many students jump straight to 'reliance granted' without mentioning this mandatory evaluation step.
  • Ignoring the objectivity test. If the internal auditor reports to the CFO or a line manager rather than to those charged with governance, objectivity is impaired and the external auditor should place little or no reliance — don't assume all internal audit functions are automatically objective.
📖 Reference: SA 610 — Institute of Chartered Accountants of India
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