CH02P4--SA 610

610.1

M/s Viaan Viraj & associates are the statutory auditors of ABC Ltd. for the FY 2019-20. The company has a strong internal control team. During the course of audit, CA Viaan, the engagement partner found that the company has factories all across the country. In order to verify the wages expenses at all the factories, CA Viaan decided to use the Internal Audit Team of the company. He accordingly discussed the same with Mr. Gaurank, the Chief Internal Auditor of ABC Ltd. to provide him a report on the wages expenses across all factories. Which of the following requirements as per SA 610 are required to be fulfilled by CA Viaan prior to using the direct assistance of the Internal Audit Team of the company? (CNO--SA610.080)

• (a) CA Viaan should obtain written agreement from the management of ABC Ltd. that the internal audit team will be allowed to follow the statutory auditors’ instructions.

• (b) CA Viaan should obtain written agreement from Mr. Gaurank that his team will keep the matters confidential.

• (c) Both a & b

• (d) CA Viaan can use the direct assistance of the Internal Audit Team after discussing the same with the management. No prior written agreement is required.

610.2

D.M. Ltd. appointed M/s K.K. & Co., Chartered Accountants as Statutory

Auditors. The Statutory Auditors found the internal audit function

reliable and effective. The Statutory Auditor assigned the task of

assessing the inventory levels of a few branches where the Statutory

Auditor believed that there might be some risk of material misstatement

to one of the internal auditor Mr. Ryan. Since the Internal Auditor had

recently done such assessment as a part of their internal audit program,

therefore, the Statutory Auditor believed that they could rely on the

former's report. Besides this, because of the paucity of time the Statutory Auditors also requested Mr. Ryan to help them in some

paperwork including audit documentation.

Before the audit was concluded, Mr. Ryan got promoted and shifted to

another city. During the audit discussion stage, the lead Statutory

Auditory found out that the documentation delegated to Mr. Ryan was

not complete. Accordingly, Statutory Auditor further checked the

inventory work delegated to the Internal Auditor, however, it was found

to be satisfactory.

In view of the above case scenario, state which of the following

statement(s) hold true: (CNO--SA610.080)

• (a) The working of Internal Audit function was reliable and

  satisfactory; therefore, the allocation of inventory level work was

  within the authority of the Statutory Auditor. This was further

  confirmed by the satisfactory work of Internal Auditory, as found

  out later.

• (b) The documentation would be considered complete as far as the

  Statutory Auditor's responsibility is concerned as the missing

  documentation was because of the oversight of the Internal

  Auditor.

• (c) Since the Internal Audit had conducted the similar inventory level

  checking activity recently, therefore, because of familiarity with

  the audit the Statutory Auditor was right in delegating the same

  to the Internal Auditor.

• (d) The Statutory Auditors should not have delegated the inventory

  level checking to the Internal Auditor, as the risk assessed was

  material. Further, the audit documents are Statutory Auditor's

  property and responsibility. Also, the Statutory Auditor should

  maintain confidentiality during all the stages of the audit.

  Therefore, it was wrong on the part of the Statutory Auditor to

  handover the task of audit documentation to the Internal Auditor.

Incs.36.1

The engagement partner has requested you to comment upon the usage of work of Internal auditor by the engagement team in accordance with relevant Standard on Auditing: (CNO--SA610.060)

• (a) As the work done by the internal auditor is marvellously designed and presented the same can be

  considered to the extent the statutory auditor can use it. As the work is highly appreciated even by

  the Board of Directors, the same should be definitely used by Andy & Co.

• (b) The work done by the Internal Auditor need to be assessed for the sufficiency and should be used

  to avoid the double work. The audit team of Andy & Co need to reduce the unnecessary work as

  the same has been performed by the other auditor.

• (c) The auditor is required to assess the competence and professional care of the work performed by

  the Internal Auditor. Thus, the auditor Andy & Co needs to reconsider the audit strategy and cannot

  use the work of the Internal Auditor.

• (d) The work performed by the internal auditor can be used by the External Auditor in this case if the

  architect is not an employee of the company but is in private practice.

Incs.06.1

YS & Associates is appointed to conduct statutory audit of XYZ Ltd. XYZ Ltd is required to appoint internal auditor as per statutory provisions given in the Companies Act, 2013 and appointed CA. IA as its internal auditor. YS & Associates asked Mr. IA to provide direct assistance to him regarding evaluating significant accounting estimates by the management and assessing the risk of material misstatements. He also seeks his direct assistance in assembling the information necessary to resolve exceptions in confirmation responses with respect to external confirmation requests and evaluation of the results of external confirmation procedures.

 

On the basis of the abovementioned facts, you are required to answer the following MCQs---

YS & Associates sought direct assistance from CA. IA, internal auditor as stated in the above scenario. Advise as to whether he is permitted to do so in accordance with relevant Standards on Auditing. (CNO--SA610.080)

• (a) YS & Associates cannot ask CA. IA for direct assistance regarding evaluating

  significant accounting estimates and assessing the risk of material misstatements.

  However, CA. IA may assist YS & Associates in assembling information necessary to

  resolve exceptions in confirmation responses as per SA 610.

• (b) CA. IA cannot assist YS & Associates in assembling information necessary to resolve

  exceptions in confirmation responses. However, YS & Associates can ask Mr. IA for

  direct assistance regarding evaluating significant accounting estimates and

  assessing the risk of material misstatements as per SA 610.

• (c) YS & Associates cannot ask CA. IA for direct assistance regarding evaluating

  significant accounting estimates and assessing the risk of material misstatements and

  in assembling the information necessary to resolve exceptions in confirmation

  responses as per SA 610.

• (d) YS & Associates can ask CA. IA for direct assistance regarding evaluating significant

  accounting estimates and assessing the risk of material misstatements and in

  assembling the information necessary to resolve exceptions in confirmation

  responses as per SA 610.

Incs.41.3

Mr. Raj decided to take direct assistance from Mr. Tushar in accordance with the procedure as prescribed in SA 610 and in that connection, he inquired about the fraud risks in the organization from him. Prior to taking such direct assistance, Mr. Raj communicated the same to the relevant authority in the company and also that he directed, supervised and reviewed the work performed by Mr. Tushar.

 

On the basis of the abovementioned facts, you are required to answer the following MCQs:

Whether it was appropriate for Mr. Raj to take direct assistance from Mr. Tushar for the matter as aforesaid? (CNO--SA610.080)

• (a) No, as it tantamount to taking direct assistance of

  internal auditor for making significant judgments in the

  audit.

• (b) Yes, as inquiry is allowed to be done and having a

  discussion with respect to the said matter is not

  appropriate.

• (c) No, as it tantamount to taking direct assistance of

  internal auditor relating to higher assessed risks of

  material misstatement.

• (d) No, as it tantamount to taking direct assistance of

  internal auditor relating to decisions the external audi tor

  makes in accordance with SA 610 regarding the internal

  audit function and the use of its work or direct

  assistance.

Incs.41.4

In accordance with SA 610, with what Standards on Auditing, respectively, Mr. Raj would have made communication for taking direct assistance of Mr. Tushar and also directed, supervised and reviewed the work performed by him?

(CNO--SA610.080)

• (a) As per SA 580 and SA 500 respectively.

• (b) As per SA 260 and SA 240 respectively.

• (c) As per SA 265 and SA 220 respectively.

• (d) As per SA 260 and SA 220 respectively.

Incs.16.1

The engagement partner has requested you to comment upon the usage of work of Internal auditor by the engagement team in accordance with relevant Standard on Auditing:

(CNO--SA610.060)

• (a) As the work done by the internal auditor is marvellously designed and presented the same can be considered to the extent the statutory auditor can use it. As the work is highly appreciated even by the Board of Directors, the same should be definitely used by Andy & Co.

• (b) The work done by the Internal Auditor need to be assessed for the sufficiency and should be used to avoid the double work. The audit team of Andy & Co. need to reduce the unnecessary work as the same has been performed by the other auditor.

• (c) The auditor is required to assess the competence and professional care of the work performed by the Internal Auditor. Thus, the auditor Andy & Co. needs to reconsider the audit strategy and cannot use the work of

  the Internal Auditor.

• (d) The work performed by the internal auditor can be used

  by the External Auditor in this case if the architect is not

  an employee of the company but is in private practice.

Incs.52.5

The external audit team decided to rely on and to use the work of internal audit function in the area where more judgment was involved or where the risk of material misstatement was assessed at a higher level. Based on the above information, kindly guide the audit team regarding use of the work of internal audit function as per SA 610 by selecting the appropriate option from below:

(CNO--SA610.060)

• (a) The external auditor shall not use the work of an internal audit function if the external auditor determines that the internal audit function’s organizational status and the relevant policies and procedures do not adequately support the objectivity of the internal auditors.

• (b) The external auditors shall not use the work of an internal audit function if the external auditor determines that the internal audit function’s organizational structure and relevant policies and procedures do adequately support the objectivity of internal auditors.

• (c) The external auditor shall use the work of the internal audit function if the extern al auditor determines that the internal audit function applies a systematic and discipline approach including quality control while discharging their duties.

• (d) The external auditor shall not use the work of the internal audit function is the external auditor determines that the internal audit function does not lack sufficient competence to discharge their duties.

Incs.53.2

In view of current scenario, which of the following requirements as per SA 610 are required to be fulfilled by Statutory Auditors of the Company, prior to using the direct assistance of the Internal Audit Team?

(CNO--SA610.080)

• (a) Statutory Auditors should obtain written agreement from the management of the Company. that the

  internal audit team will be allowed to follow the statutory auditors’ instructions.

• (b) Statutory auditors should obtain written agreement from internal audit team that his team will keep

  the matters confidential.

• (c) Both a & b.

• (d) Statutory Auditors can use the direct assistance of the internal audit team after discussing the

  same with the management. No prior written agreement is required.