Internal audit

In this lesson

1. 0:00 Understanding internal audit and external audit relationship
2. 1:29 Key differences between internal and external auditors
3. 4:44 Assessing internal audit effectiveness for reliance
4. 7:17 SOLIDUS criteria for evaluating internal audit quality
5. 10:01 Evaluating internal audit work and evidence sufficiency
6. 10:59 Appropriate areas for internal audit involvement
7. 12:17 Using internal auditors as direct audit assistance
8. 14:16 Documentation requirements and audit report considerations

About this lesson

This lesson covers the relationship between internal and external audit functions, how to assess whether internal audit work is reliable enough to depend on, and the specific procedures and areas where external auditors can legitimately rely on internal audit findings. You'll also discover the key criteria for evaluating internal audit departments and the important limitations on when internal audit cannot be used, particularly for work requiring professional judgement. Understanding this relationship is essential for the Audit and Assurance paper, as it directly impacts audit planning, risk assessment, and the scope of substantive procedures you'll perform. The session begins by establishing the distinction between internal and external audit. While both use similar audit techniques, internal audit focuses on operational efficiency and effectiveness across the entire organisation, whereas external audit forms an opinion on financial statement truth and fairness. Internal auditors report to the audit committee and management, while external auditors remain accountable to shareholders. Importantly, external auditors must be qualified accountants and follow International Standards on Auditing, whereas internal auditors have no formal qualification requirements. This difference shapes how and when you can rely on their work. The core methodology centres on the SOLIDUS criteria for evaluating internal audit departments: Scope, Organisational status, Lack of direct involvement in management, Due skill and care, Independence, and Unresolved issues. You'll learn to assess the composition and technical competence of the internal audit team, verify they report to the audit committee with genuine organisational standing, confirm their independence despite potential employment relationships, and ensure their work meets professional standards. You'll also evaluate whether their procedures were properly planned, supervised, documented, and generated sufficient appropriate evidence for the audit risks identified. The lesson concludes with practical applications and critical boundaries. Internal audit work can support your testing of controls, compliance reviews, and transaction tracing, but cannot be used for areas requiring professional judgement, such as provisions or complex estimates. If you engage internal auditors as direct audit team members, management must agree in writing, and you retain full responsibility for directing, supervising, and reviewing their work. All such arrangements must be thoroughly documented to create an audit trail demonstrating your assessment of their competence and objectivity.

Duration: 15m