PQR & Co., Chartered Accountants, has been appointed as statutory auditor of MGM Ltd. The financial statements of the company have material…

In the given situation, the engagement partner has taken the age wise debtor report from the reports of the internal auditor due to shortage of time and provided the same in the audit report. However, after the issuance of audit report, engagement partner felt that disclosure of debtors is misleading and ageing is not done on the basis of correct principles due to which wrong provisions are made. Contention of the engagement partner for holding internal auditor responsible for the same is not correct as the external auditor has sole responsibility for the audit opinion expressed, and that responsibility is not reduced by the external auditor's use of the work of the internal audit function or internal auditors to provide direct assistance on the engagement. Before relying on the work of internal auditor, PQR & Co. should consider the following: (i) To determine whether the work of the internal audit function or direct assistance from internal auditors can be used, and if so, in which areas and to what extent; and having made that determination; (ii) If using the work of the internal audit function, to determine whether that work is adequate for purposes of the audit; and (iii) If using internal auditors to provide direct assistance, to appropriately direct, supervise and review their work; (iv) The extent to which the internal audit function's organizational status and relevant policies and procedures support the objectivity of the internal auditors; (v) The level of competence of the internal audit function; and (vi) Whether the internal audit function applies a systematic and disciplined approach, including quality control.