We’re in this together: Leveraging the work of internal and external auditors

Audit committees oversee internal and external auditors. In his blog, Eric Turner, principal, CPA Canada, explores how these three groups can better communicate and maximize their interconnected roles and responsibilities.

How does the audit committee foster an effective relationship among those responsible for the internal audit function and the external auditor? A new publication by the U.S. Centre for Audit Quality (CAQ) provides some insights.

The publication, Intersecting Roles: Fostering Effective Working Relationships among External Audit, Internal Audit and the Audit Committee , notes a key trend that internal audit is spending more hours to provide direct assistance to external audit. This shows the important need to develop ways to leverage and strengthen the intertwining relationships among internal auditors, external auditors and audit committee chairs. Although focused on the U.S. regulatory environment, the publication is relevant in the Canadian context — particularly as Canadian auditing standards deal with using the work of internal auditors and were recently revised to reflect changes in practice regarding the interactions between external and internal auditors.

Audit committees often use different approaches in coordinating the extent to which internal audit hours are devoted to assisting the external auditors. But ultimately, it is the audit committee’s decision of how much of internal audit’s time and resources are made available to the external audit. The external auditor, of course, needs to determine whether, in what areas and to what extent internal auditors can be used to provide direct assistance.

External and internal audit may want to consider specific tactics to help improve audit efficiency, for example by avoiding duplication of testing and inconsistent documentation of work. A key point to note here is that the revised auditing standard contains specific documentation requirements when the external auditor uses internal auditors to provide direct assistance. Audit efficiency may be enhanced if the internal auditor is aware in advance of the nature, extent and format of documentation that the external auditor will require.

Respecting roles and responsibilities is critical to fostering effective relationships between the three groups and can drive efficiencies and enhancements in the performance of the external audit.

There is also a need to plan and coordinate the external audit throughout the year, so that management, as well as the three groups, work well together. Both formal and informal communication channels are important in this respect.

Finally, a key benefit to establishing strong relationships is that both external and internal auditors will be able to provide the audit committee with perspectives on the quality of each other’s work and the competence of their respective teams.

KEEP THE CONVERSATION GOING

What have you learned about the importance of these key relationships? How can they be enhanced to improve audit quality?

Post a comment below or email me  directly.

CPA Canada’s Audit Quality Blog is designed to create an exchange of ideas on developments and issues in global audit quality, as well as their impact in Canada.

About the Author

Eric Turner, CPA, CA

Director, Auditing and Assurance Standards, CPA Canada

Highlights

Gain practical organizational insights and learn from industry experts at this annual event for not-for-profit financial leaders.