If your company has an internal audit function, you may be able to facilitate a collaborative approach to your external audit process. Read on to understand how to use your internal audit team to streamline financial reporting by external auditors.
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:
- Obtain audit evidence
- Provide direct assistance under the direction, supervision and review of the external auditor
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.
Obviously, before your next audit, it’s important to evaluate whether your internal audit function meets the requirements of SAS 128. If it does, your fieldwork next year has the potential to run more smoothly and efficiently by leveraging the internal team in a collaborative audit process. If you have questions about external audits and financial reporting or if you need an external auditor for your company, JLK Rosenberger can help. For more information, call us at 949-860-9902 or click here to contact us.