30 May 2012

FRC: APB's consultation paper on revisions to auditing standards addressing the use of internal audit

The proposed changes are designed to:

• enhance the auditor's risk assessment procedures for entities with an internal audit function, and
• provide a more robust framework for evaluating and using the work of an internal audit function including in appropriate, limited circumstances obtaining direct assistance from internal audit staff under the supervision and control of the external auditor. 

The IAASB has recently issued a revision of ISA 610, 'Using the Work of Internal Auditors'. Other than redrafting for the Clarity Project, this standard had not been previously revised by the IAASB since 1994 and did not address subsequent developments in the internal audit environment and changes in external audit practice – matters that were highlighted during the Clarity Project. The revised standard is updated for these developments and is aimed at enhancing the external auditor’s performance by providing a more robust framework for evaluating and using the work of an entity’s internal audit function.

ISA 315, 'Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment', has also been revised by the IAASB to explain how the internal audit function and its findings can usefully inform the external auditor’s risk assessments. A small number of related conforming amendments have also been made to other ISAs.

The APB supports these revisions and believes that they represent an improvement to the current standards, setting out a logical flow to the external auditor’s consideration and, where relevant, use of an entity’s internal audit function. The APB commented on the exposure drafts that were issued by the IAASB and is satisfied that the significant issues it identified have been satisfactorily addressed in the final standards. Accordingly, the APB believes that the corresponding ISAs (UK and Ireland) should be revised to adopt the changes made in these ISAs. This will ensure that UK and Ireland auditing standards continue to be compliant with the ISAs, and maintains the APB’s support for the international harmonisation of auditing standards based on ISAs. 

Press release

Consultation Paper

© FRC