Reliance on Internal Audits

The external auditor may rely on the work of internal auditor while carrying his/her audit work. The internal and external auditor must co – operative due to the following reasons:

1. Internal audit forms part of internal control system which has been established by the management. The external auditor has accustomed himself or herself to place reliance on the internal controls
2. Some of the objectives of the internal audits are almost the same as for the external auditor The external auditor may use the work of the internal auditor in two ways: one by taking into account the work done by the internal auditor and two by agreeing that the internal will render direct assistance to the external auditor.

Before placing any reliance on the work done by the internal auditor, external auditor must assess the internal auditor and his/her work regarding the following areas of concern:

• Independence of the internal auditor – the internal auditor is an employee of the company, but may be in a position to organize his or her activities in such a way that he or she reports objectively and is not compromised at all. If this is possible then the external auditor can highly rely on the internal auditor’s work otherwise do not rely on it
• The scope and the objectives of internal audit – the external auditor should whether the scope of the work done by internal auditor is satisfactory and can be used for external audit
•  Due professional care – in order for the work of the internal auditor to be of any use it must have been done professional and in regard to all required standards and guidelines.
• Technical competence – for the work of the internal auditor to useful, the person conducting the internal audit must technically qualified as per requirements of the companies’ Act Cap 486 of laws of Kenya
• Recording standards – the external must assess whether the necessary reporting standards were applied when the internal audit reports were made
• Resources available – an internal audit department that has scarce resources may not be relied at all and may not be useful to the external auditor’s work