Question

The external audit team needs to be careful when it comes to using others work. Do you think that this is an area where external auditors often use the work when they shouldn't ?

Answer 1

External audit not only attests to the true and fair presentation of the financial affairs of an organisation ,but also ensures that its internal control mechanisms and other compliances of the legal framework are just & adequate, in line with government requirements, industry norms and also as per the written-down company policies. It ensures an error-free reporting of the financial statements, for the period covered by the audit.Their final audit opinion in the form of an audit report assures about both the financial and non-financial matters prevalent in the company-- to its management, regulating authorities like the federal/state government(tax & law) and also to the existing and potential investors----all of whom place heavy reliance on the audit report.

In compiling evidence to base their report , the external auditors are well within their scope to use the work of others , such as :

the work of the internal auditors , present with in the company

departmental reports available with the different departmental heads within the company

any other compliance report sent by various departments in the company , to the concerned authorities

------as it saves much of her/his time and also increases his efficiency at other jobs on hand ,before he/she forms an opinion about the financial affairs of the company.In fact, these can give a lead/clue ,which may lead to improvisation/s in his/her audit procedures.

But as per as Auditing Standard No.5 the external auditor must

evaluate and satisfy himself the extent to which he will make use of them and also test and establish the reliability of the information contained therein.

check the efffectiveness of the internal controls present , either from going through their work or working along with them directly .

verify and satisfy himself about the level of understanding and knowledge (competence)of the person/s involved in compiling the work /report.

be satisfied with respect to the objective(impartial) manner in which the work was accomplished.

be aware of the risks associated with all the controls in place-- as more the risk , more he/she has to perform all over again , to get a true idea for forming his/her opinion.

That said,using others' work after testing its veracity and truthfulness , is well within an external auditor's scope. But the external auditor is solely/singly responsible for the conclusions arrived at , through his/her audit report .