Rubiatul Adawiyah Binti Mohd Ashari

(264831)
Group C
BKAA3023
Take home Exercise 3

1. The auditor has a sole responsibility for the audit opinion expressed, and that
responsibility is not reduced by the auditor’s use of the work of an auditor’s expert.

(Source: ISA 620)

(a) Discuss the above statement in the context of the auditor’s reliance on the work
of an expert.

The work of that expert is adequate using the auditor’s purposes, then the
expert’s finding or conclusion may be accepted as appropriate audit evidence.

(b) Explain TWO (2) specific procedures that can be performed by auditors to
evaluate the adequacy of the expert’s work.

• Making inquiries of the expert and reviewing their working papers and
reports.
• Corroborative procedures such as observing their work, examining
published data, confirming relevant matters with third parties,
performing detailed analytical procedures, re-performing calculation
and discussion with other relevant expertise or the management.

2. Question 4 (Review Questions, page 314, Ayoib et al. 2018).

i. Explain the factors that must be considered by a principle auditor when relying
on the work of other auditors.
• Determine how the work of other auditor will affect the audit
• Consider the professional competence of the other auditors in the
context of the specific assignment.
• Perform procedures to obtain sufficient and appropriate audit evidence
that the work of the other auditors is adequate for the principle auditor’s
purposes in the context of the specific assignment.
• Consider the significant findings of the other auditors.

ii. Explain the role of support letters as evidence in the audit of financial
statements.

The parent company can continue support its subsidiaries financially, so any
debt incurred will be paid off and they will not demand repayments of inter-
company loans or balances until all other creditors have been paid.
 iii. State the conditions that may require auditors to rely on the evidence supplied
by specialists.
• Knowledge and ability of the audit team.
• Risk of material misstatement based on the nature, complexity and
materiality of the material being considered.
• Quantity and quality of the other audit evidence which can be obtained.

iv. What are the factors that can be used to indicate the reliability of a specialist?
• Competence of the specialist – technically qualification, certification
and license or membership of professional bodies.
• Experience of the specialist.
• Independence of the specialist.

v. Explain the role of internal auditors for financial auditing. How is it similar to
or different from the role of external auditor?

The role of internal audit is to provide independent assurance that an

organisation’s risk management, governance and internal control processes are
operating effectively. It is different with the role of external auditor where it is
more concerned with the accuracy of business account and be organization’s
financial condition.

3. Operational auditing service provided by internal auditors aims to improve an

organization’s operation and review of an organization for efficiency and effectiveness.
Discuss what is meant by the terms "effectiveness" and "efficiency."

Effectiveness is how well a process accomplishes its objective.

Efficiency is how well a process turns inputs into outputs more efficient processes have
less waste than inefficient processes.

4. In using or determining whether the work of internal auditors is likely to be adequate

for purposes of the audit, external auditors typically consider internal auditors’
effectiveness if they meet THREE (3) criteria. What are these criteria?

• Organizational status – to achieve the desired level of independence, internal

auditor should report to the highest level of management and be free from any
operating responsibility.
• Scope of function – nature and extent pf function performed by internal audit,
management’s action and response to the internal audit recommendations.
• Technical competence – adequate training and skills.
5. Discuss TWO (2) differences between internal audit and external audit.

Internal Auditor External Auditor

Is an organization’s employee, or can be
an independent entity (outsource or co-
source) and not usually a member of the
MIA
Serves the needs of the organization,
though the function must be managed by
the organization.
Is an independent contractor practicing
accounting from outside of the
organization and a member of MIA.
Serves third parties who need reliable
financial information in compliance with
the Companies Act 2016.