Does your company have an internal audit function? If so, you may be able to use your internal audit team to streamline financial reporting by external auditors. Here’s guidance on how to facilitate this collaborative approach.
Recognize the benefits
External auditors aren’t required to use internal auditors in any capacity. But collaboration between internal and external audit teams can be a win-win.
Collaboration can help minimize disruptions to normal business operations that sometimes happen during external audit fieldwork. And internal audit personnel may have information that’s useful to the external auditor in obtaining an understanding of the entity and its environment and identifying and assessing risks of material misstatement.
Understand AICPA guidance
In 2014, the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) issued Statement on Auditing Standards (SAS) No. 128, Using the Work of Internal Auditors. This standard clarifies an external auditor’s responsibilities when using internal auditors.
SAS 128 differentiates between two types of assistance provided by the internal audit function. Specifically, external auditors may consider using internal auditors to:
One of the most significant changes in SAS 128 is the requirement for the internal audit function to apply a systematic and disciplined approach to planning, performing, supervising, reviewing and documenting its activities. This includes having appropriate quality control policies and procedures.
If the external auditor determines that the internal audit function lacks a systematic and disciplined approach to its activities, the external auditor can’t use the work of the internal auditor in obtaining audit evidence.
Additionally, SAS 128 requires management (or other parties charged with governance) to provide a written acknowledgment that internal auditors providing direct assistance will be permitted to follow the instructions of the external auditor and that the entity won’t interfere in the work the internal auditor performs for the external auditor.
Challenge the status quo
SAS 128 could change the role your internal auditors play on our external audit team. So, before your next audit, let’s evaluate whether your internal audit function meets the requirements of SAS 128. If so, we can leverage our capabilities, ensuring that next year’s fieldwork will run as smoothly and efficiently as possible.