IAASB proposed enhanced standard on using the work of Internal Auditors, revised to ISA 315 and ISA 610

On July 15, 2010, IAASB issued an Exposure Draft (ED) for the proposed revision of ISA 610, Using the Work of Internal Auditors. The standard is being revised in recognition of developments in the internal auditing environment as well as the evolving relationship between internal and external auditors. As a result of the revision of ISA 610, changes are also being proposed to ISA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment.

The IAASB's objective in revising ISA 315 and ISA 610 is to enhance the performance of external auditors by, (a) enabling them to better consider and leverage, as appropriate, the knowledge and findings of an entity's internal audit function in making risk assessments in the external audit, and (b) strengthening the framework for the evaluation and, where appropriate, use the work of internal auditors in obtaining audit evidence. The IAASB believes that the proposed revision will enhance the quality of audits internationally.

In determining whether the work of the Internal Audit function can be used, the IAASB proposes that the external auditor's initial assessment should be based on an evaluation of the internal audit function's degree of objectivity (as supported by its organization status, and relevant policies and procedures), level of competence and application of a systematic and disciplined approach, including quality control. The related requirements and guidance on factors to consider in making this evaluation have been updated to reflect developments in internal audit practice.

In some jurisdictions, internal auditors provide direct assistance to the external auditor through performance of audit procedures on the audit engagement under the direction, supervision, and review of the external auditor. Extant ISA 610 states explicitly that it does not deal with such instances. There is ambiguity about whether the fact that ISA 610 does not deal with direct assistance meant that the IAASB does not support its use, or whether it was simply not addressed in the scope of the ISA. However, national auditing standards of a number of jurisdictions allow for direct assistance, and it is common practice in many; while in others, it is not allowed. The IAASB concluded that continued ambiguity about its intent is not in the public's interest.

The IAASB believes, that, the proposed requirements will :

(a)  provide a framework for determining the nature and extent of the work of the internal audit function that can justifiably the used in the external audit; and

(b)  set out clear boundaries to guard against use of the work of the internal audit function in circumstances in which it would be inappropriate.

Comments for this ED are requested by November 15, 2010. Respondents are asked to submit their comments electronically through the IAASB website (www.iaasb.org), using the "Submit a Comment" link on the Exposure Draft and Consultation Papers page.

Comments can also be faxed to the attention of the IAASB Technical Director at +1 (212) 856-9420, or mailed to : Technical Director - International Auditing and Assurance Standards Board, 545 Fifth Avenue, 14th Floor, New York, New York 10017 USA.

Copies of the exposure draft may be downloaded free of charge from the IAASB website at www.iaasb.org, or just follow the download link in here : Proposed ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment, and ISA 610 (Revised), Using the Work of Internal Auditors