An external audit team is deciding whether to rely on internal audit's work for an annual compliance audit.
Which of the following is the GREATEST consideration when making this decision?
Click on the arrows to vote for the correct answer
A. B. C. D.A.
When deciding whether to rely on the work of internal audit for an annual compliance audit, the external audit team must consider several factors to ensure that the audit opinion is based on reliable and sufficient evidence. Among the given options, the greatest consideration in making this decision is the independence of the internal audit department from management's influence, which is option A.
Independence is a fundamental principle in auditing that requires auditors to be free from any relationships that may compromise their objectivity, integrity, or impartiality. When internal audit operates independently, it can provide assurance to external auditors that its work is unbiased, objective, and conducted with professional skepticism. In contrast, if internal audit is not independent, its work may be influenced by management's interests, directives, or pressures, which can compromise the credibility and reliability of the audit results.
Moreover, independence is a key determinant of the internal audit function's effectiveness and efficiency in identifying and reporting on risks, controls, and compliance issues. When internal audit operates independently, it can have access to all relevant information, systems, and processes necessary to evaluate the adequacy and effectiveness of controls and identify areas for improvement. It can also communicate its findings and recommendations to management and the board of directors without fear of retaliation, intimidation, or censorship.
In contrast, when internal audit is not independent, it may face obstacles in obtaining the necessary information, data, and resources to perform its duties effectively. It may also face conflicts of interest, ethical dilemmas, or legal liability issues that can compromise its ability to act in the best interest of the organization and its stakeholders.
Therefore, when the external audit team is deciding whether to rely on internal audit's work for an annual compliance audit, it should assess the independence of the internal audit department from management's influence as the greatest consideration. However, the external audit team should also consider other factors, such as the professional certifications held by the internal audit team members, the years of experience each of the internal auditors have in performing compliance audits, and the level of documentation maintained by internal audit and the methods used to collect evidence, to ensure that the internal audit work is of high quality and meets the audit objectives.