Financial Reporting Council updates standards on the use of internal audit
09 Jul, 2013
The Financial Reporting Council (FRC) have incorporated improvements made to International Standards on Auditing (ISAs) 315 and 610 into their UK and Ireland equivalent ISAs and in doing so have imposed a ban on internal audit staff from providing ‘direct assistance’ to the external audit team for audits conducted in accordance with ISAs (UK and Ireland). The improvements are effective for audits of financial statements for periods ending on or after 15 June 2014.
International Standards on Auditing (ISAs) (UK and Ireland) 315: Identifying and assessing the risks of material misstatement through understanding the entity and its environment and International Standards on Auditing (ISAs) (UK and Ireland) 610: Using the work of internal auditors address the external auditor’s consideration and use of the work of internal auditors. The revisions to ISAs 315 and 610 were made by the International Auditing and Assurance Standards Board (IAASB) in 2012 and were adopted by the FRC in February 2013.
The improvements:
- Enable better consideration and leveraging of the knowledge and findings of the internal audit functions in making risk assessments; and
- Strengthen the framework for the evaluation and, where appropriate, use of the work of internal auditors in obtaining audit evidence.
Direct assistance is defined in ISA (UK and Ireland) 610 as:
The use of internal auditors to perform audit procedures under the direction, supervision and review of the external auditor.
The UK and Ireland standard goes beyond the requirements of the International IAASB standard ISA 610 (revised) which does not impose a ban on ‘direct assistance’ although the IAASB standard does recognise that in some jurisdictions the use of the internal auditor to provide ‘direct assistance’ may be prohibited by law or regulation.
The FRC hopes that by introducing a clear division of responsibility between internal and external audit teams this will help to improve investor confidence in the integrity of the external audit process.
Click for (all links to FRC website):
Feedback statement on consultation on prohibition of direct assistance by Internal Audit Staff
