Evaluating the Quality of Client's Internal Audit Function An external auditor assesses the quality of the internal audit function to determine whether the internal auditors' work is relevant to the external audit and of sufficient quantity and quality. Describe the three factors of the internal audit function that would be considered by the external auditor in this quality assessment

Answer 1

The external auditor considers three primary characteristics in assessing the quality of the internal audit function:
1 . Competence,
2 . Objectivity, and
3 . Quality of work performance.
Competence:
• Educational level and professional experience.
• Professional certification and continuing education.
• Review of quality of audit policies, programs, and procedures.
• Demonstrated supervision and review of internal auditors' activities.
• Quality of working-paper documentation, reports, and recommendations.
• Periodic evaluation of internal auditors' performance—both self-assessment and feedback from client management and audit committee.
• Periodic quality-control assessments performed in accordance with the International Standards for the Professional Practice of Internal Auditing.
Assessment of objectivity:
• An organizational reporting status is sufficient to assure audit coverage of major organizational risks as well as consideration of, and action on, the findings and recommendations of the internal auditors.
• Internal auditor has direct access and reports regularly to the board of directors, the audit committee, or the owner-manager.
• Board of directors, the audit committee, or the owner-manager oversees employment decisions related to the director of the internal audit function.
• Policies that prohibit internal auditors from auditing areas where relatives are employed in important or audit-sensitive positions.
• Policies that minimize other potential conflicts of interest, such as auditing an area where they were employed before entering internal audit, or where they will be placed after spending time in internal audit.
Assessing the quality of internal audit work:
• Scope of work is appropriate to meet the objectives.
• Audit programs are adequate.
• Working papers adequately document work performed, including evidence of supervision and review.
• Conclusions are appropriate in the circumstances.
• Reports are consistent with the results of the work performed.