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1- Auditors can use the work of two groups of people in performing the audit –...

1- Auditors can use the work of two groups of people in performing the audit – the client’s internal audit staff and specialists. Under what conditions can the outside auditors use or rely on the work of internal auditors? Per SAS 73, what is the definition of a “specialist?” What does the auditor need to know about or do when a specialist is added to the audit team?

2-Fraud audits differ from financial audits in several ways. Identify at least five (5) differences between these two types of audits.

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Answer #1

1. The external auditor can rely on the work of internal auditor by checking the following:

a. The professional qualifications of auditor on the basis of competency.

b. The adequacy of planning and control in the internal audit department.

c. The responsibility of audit department to board of directors or audit committee.

d. The efficiency of operations of internal audit management.

e. The scope of the internal audit department's work.

A "specialist" is a person who is specialised in a particular field other than accounting or auditing. Specialists can be actuaries, geologists and engineers.

The auditor need to know about or do when a specialist is added to the audit team are as follows:

a. The auditor should evaluate the professional qualifications of the specialist to know whether the person is specialized in the particular field.

b. The auditor should obtain an understanding of the nature of work performed by specialist.

c. The auditor must determine the relationship of the specialist with the client, if they are not related then auditor have more assurance on the work of specialist.


2. Fraud audits differ from financial audits in the following ways:

a. Financial statement auditors have a standardised approach for audits while fraud auditors have a different approach depending on the situation and not any standardised approach.

b. Financial statement auditors note errors and omissions while fraud auditors focus on exceptions.

c. Financial statement auditors assess control risk to design audit procedures while fraud auditors imagine ways control can be used for fraudulent purposes.

d. Financial auditors use the concept of materiality while fraud auditors believe in immaterial fraud.

e. Financial audits are based on standards of accounting and auditing while fraud audits are based on behaviour motive, rationalisation and opportunity.

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