Evaluating the Quality of External Audit Work
Internal Audit Standard No. 13
Introduction
The purpose of this Internal Audit Standard No. 13 (the “Standard”) is to provide a framework for evaluating the quality of the external audit work performed. This Standard applies to all engagements in which external auditors are engaged, including annual financial statement audits, regulatory audit engagements, special purpose audit engagements, and technology audit engagements.
Definitions
For the purposes of this Standard, the following terms are given the following meaning:
External Auditor: An independent audit engagement that is conducted by an independent, outside auditing firm and contracted services performed by the firm, such as quality assurance and mathematical analysis. Such services typically include the issuance of an audit report, the conduct of tests of accounts and records, and the making of representations to management and shareholders.
Audit Quality: The degree to which an auditor’s conclusions are consistent with applicable accounting standards and applicable auditing standards, and are based on sufficient competent evidential matter.
Responsibilities
The key responsibility for evaluating the quality of external audit work rests with the Audit Committee. In addition, management shall have a clear understanding of their responsibilities in evaluating the quality of the work performed by the external auditors.
Management is responsible for ensuring that the external auditors are or have been:
- Engaged on the basis of impartiality and objectivity
- Authorized to have appropriate access to all records and personnel
- Refrained from performing non-audit services which impair their independence
- Subject to appropriate professional standards
- Assisted with the appropriate level of resources to complete the audit
The Internal Audit Department is also responsible for evaluating the quality of external audit work. Internal auditors should maintain an understanding of the external auditor’s work and must monitor the external audit work to determine whether the work is in accordance with professional standards.
Evaluating Audit Quality
The following are the steps to evaluate the quality of the audit:
1. Understand the engagement: Before the evaluation begins, it is important to understand the objectives of the engagement and the scope of the audit procedures. This includes understanding the nature of the services performed by the external auditor.
2. Review the external auditor’s work: Internal auditors should review the work performed by the external auditor, including the integrity of the financial statements, the sufficiency of the evidence provided, as well as the reasonableness of the auditor’s conclusions.
3. Review the external auditor’s reports: Internal auditors should review external audit reports for accuracy, completeness, and compliance with auditing standards.
4. Assess the external auditor’s independence: Internal auditors should assess the external auditor’s independence to ensure that the auditor’s report is free from bias or influence and that the auditor is adequately knowledgeable and experienced in the specific area of the external audit.
5. Assess the external auditor’s performance: Internal auditors should assess the external auditor’s performance in terms of timeliness, cost-effectiveness, communication, and overall quality of the audit.
Conclusion
This Internal Audit Standard No. 13 is intended to serve as a framework for evaluating the quality of the external audit work performed. It is important for all parties involved in the evaluation process to have a clear understanding of their respective roles and responsibilities in evaluating the quality of the external audit work. In addition, the assessment of audit quality should be completed in a timely manner, with the aim of ensuring the integrity and accuracy of the audit results.
