VIETNAMESE STANDARDS ON AUDITING
STANDARD No. 610
USING THE WORK OF INTERNAL AUDITING
(Issued in pursuance of the Finance Minister’s Decision No. 143/2001/QD-BTC dated 21 December 2001)
GENERAL PROVISIONS
- The purpose of this Vietnamese Standard on Auditing (VSA) is to establish standards and fundamental principles and provide guidance to external auditors and the audit firm on considering the work of internal auditing when auditing financial statements. This VSA does not deal with instances when personnel from internal auditing assist the external auditor in carrying out external audit procedures.
- The external auditor should consider the activities of internal auditing and their effect, if any, on external audit procedures.
- This VSA applies to the auditors and the audit firms in using the work of internal audit to support audit of the financial statements, and also applies to an audit of other financial information and related services rendered by the audit firm.
The external auditor can use the work of internal auditing to support his/her audit of the financial statements, but holds responsibility for the nature, timing and extent of the audit and for the opinion expressed on the audited financial statements.
Internal auditors and the entity under audit are expected to possess essential knowledge on the principles and procedures prescribed in this VSA in exercising their responsibility for providing documents and information to and joining work with the external auditor in auditing the financial statements.
In this VSA, the following terms have the meaning attributed below:
- Internal auditing is part of internal controls established within an entity with the functions of examining and evaluating the adequacy and effectiveness of the accounting and internal control systems, and consideration of compliance with law and regulations.
CONTENT OF THE VSA
Scope and Objective of Internal Auditing
- The scope and objective of internal auditing vary widely and depend on the size and structure of the entity and the requirements of its management. Ordinarily, internal auditing activities include one or more of the following:
- Review of the relevance, effectiveness and efficiency of accounting and internal control systems. The establishment of adequate accounting and internal control systems is a responsibility of management which demands proper attention on a continuous basis. Internal auditing is ordinarily assigned specific responsibility for reviewing these systems, monitoring their operation and recommending improvements thereto.
- Examination and assessment of the quality and reliability of financial and operating information in the financial statements and managerial accounting reports. This may include review of the means used to identify, measure, classify and report such information and specific inquiry into individual items including detailed testing of transactions, balances and procedures.
- Review of the profitability, efficiency and effectiveness of operations including non-financial activities of an entity, identification of weaknesses and loopholes, and recommendation for improvement.
- Review of compliance with laws, regulations and other external requirements and with management policies and other internal requirements.
Relationship Between Internal Auditing and the External Auditor
- The role of internal auditing is determined by the Director (or leader) of the entity and subject to change as required by management over time. An external auditing objective is to report independently and objectively on the financial statements with primary concern as to whether the financial statements are free of material misstatements.
In achieving the objectives, external and internal audits would often apply similar approaches and procedures; certain aspects of internal auditing may be useful to external auditors in determining the nature, timing and extent of external audit procedures.
- Internal auditing opinions on the financial statements cannot achieve the same degree of independence as required of that of the external auditor. The external auditor has sole responsibility for the audit opinion expressed, and that responsibility is not reduced by any use of the work of internal auditing.
Understanding and Preliminary Assessment of Internal Auditing
- The external auditor should obtain a sufficient understanding of internal audit activities to assist in planning the audit and developing an effective audit approach.
- Effective internal auditing will often allow a modification in the nature and timing, and a reduction in the extent of procedures performed by the external auditor but cannot eliminate them entirely. In some cases, however, having considered the activities of internal auditing, the external auditor may decide that internal auditing will have no effect on external audit procedures.
- During the course of planning the audit, the external auditor should perform a preliminary assessment of the internal audit function when it appears that internal auditing is relevant to the external audit of the financial statements in specific audit areas.
- The external auditor’s preliminary assessment of the internal audit function will influence the external auditor’s judgment about the use of the work of internal auditing in modifying the nature, timing and extent of external audit procedures.
- A preliminary assessment of the internal audit function is based on the important criteria below:
- Organizational Status of Internal Auditing
The external auditor should consider the status of internal in the entity and the effect it has on its ability to be independent and objective. Independence and objectiveness of internal auditing should be insured when internal auditing has the rights to (1) reporting to the highest level of management, (2) being free of any other operating responsibility and (3) being free to communicate fully with the external auditor.
- Scope of Function
The external auditor would assess internal auditing assignments performed, and consider management’s attitude and acts on internal audit recommendations.
- Technical Competence of Internal Auditors
The external auditor would consider technical training, professional qualifications and experience of internal auditing and review the policies for hiring and training the internal auditing staff.
- Due Professional Care
The external auditor would consider whether internal auditing is properly planned, supervised, reviewed and documented. The external auditor would also consider the existence of adequate audit manuals, work programs and working papers of internal auditing.
(e) Activities and Efficiency of Internal Auditing in Prior Years
The external auditor need to consider the performance and the efficiency of internal auditor in prior years. The consideration should cover the extent of work performed; the ability of identifying and detecting fraud and error; and internal auditing report.
Liaison and Coordination
- When planning to use the work of internal auditing, the external auditor will need to consider internal auditing’s tentative plan for the period and discuss it at as early a stage as possible. Where the work of internal auditing is to be a factor in determining the nature, timing and extent of the external auditor’s procedures, it is desirable to agree in advance the timing of such work, the extent of audit coverage, test levels and proposed methods of sample selection, documentation of the work performed and review and reporting procedures.
- Liaison with internal auditing should be held at appropriate intervals during the period. Either auditor should be kept informed by the other of any significant matter which may affect the work of the two.
The external auditor has the rights to access to internal auditing documentation. In case of the internal auditor’s refusal to coordinate, the external auditor also has the rights to deal with the case as a limitation on the audit scope.
Evaluating and Testing the Work of Internal Auditing
- When the external auditor intends to use specific work of internal auditing, the external auditor should evaluate and test that work to confirm its adequacy for the external auditor’s purposes.
- The evaluation of specific work of internal auditing involves consideration of the adequacy of the scope of work and related programs and whether the preliminary assessment of the internal auditing remains appropriate. This evaluation may include consideration of whether:
(a) the work is performed by persons having adequate technical training and proficiency as internal auditors and the work of internal auditing is properly supervised, reviewed and documented;
(b) sufficient appropriate audit evidence is obtained to afford a reasonable basis for the conclusions reached;
(c) conclusions reached are appropriate in the circumstances and any reports prepared are consistent with the results of the work performed; and
(d) any exceptions or unusual matters disclosed by internal auditing are properly resolved.
- The nature, timing and extent of the testing of the specific work of internal auditing will depend on the external auditor’s judgment as to the risk and materiality of the area concerned, the preliminary assessment of internal auditing and the evaluation of the specific work by internal auditing.
18. The external auditor would record conclusions regarding the specific internal auditing work that has been evaluated and tested./.
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