Your firm is the newly appointed external auditor to a large company that sells, maintains and leases office equipment and furniture to its customers and you have been asked to co- operate with internal audit to keep total audit costs down. The company wants the external auditors to rely on some of the work already performed by internal audit. The internal auditors provide the following services to the company: (i) A cyclical audit of the operation of internal controls in the company‘s major functions (operations, finance, customer support and information services); (ii) A review of the structure of internal controls in each major function every four years; (iii) An annual review of the effectiveness of measures put in place by management to minimise the major risks facing the company. During the current year, the company has gone through a major internal restructuring in its information services function and the internal auditors have been closely involved in the preparation of plans for restructuring, and in the related post-implementation review. Required: Describe the circumstances in which it would not be possible to rely on the work of the internal auditors

Circumstances in which it would not be possible to rely on the work of internal audit
(i) It may not be possible to rely on the work of internal auditors if they:
– Are not competent (this relates to experience as well as qualifications);
– Lack integrity;
– Do not properly plan or document their work, or if management does not act on (or at least respond to) recommendations made;
– Do not perform work relevant to the external auditor.
(ii) It will also not be possible to rely on internal audit if internal audit is insufficiently independent within the organization, i.e. where internal auditors have insufficient operational freedom, where they are reporting to those who control the functions that they work on, or where they are reporting on their own work.

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