Lecture on Auditor's Reliance on Third Parties
Introduction
- Auditors often need to rely on third parties for evidence.
- This includes experts like:
- Valuers for property portfolios.
- Actuaries for pension liabilities.
- Lawyers for lawsuit outcomes.
- Internal auditors can perform audit tasks to assist external auditors.
Role of External Experts
- Valuers: Provide market prices for land and buildings.
- Actuaries: Evaluate pension fund adequacy.
- Lawyers: Offer opinions on legal case outcomes.
- Internal Auditors: Evaluate internal controls and assist with procedural work.
- Other External Auditors: In group audits, reliance may be placed on subsidiary auditors.
Criteria for Selecting Third Parties
- Must be professionally qualified.
- Appropriately experienced in the relevant sector.
- Maintain independence to avoid biased outcomes.
- Belong to professional firms with good reputations.
Agreement with Third Parties
- Define the exact scope of work.
- Set deadlines and ensure clarity in communication.
- Ensure confidentiality of sensitive information.
Auditor Responsibility
- Auditors cannot fully delegate responsibility; they must scrutinize expert opinions.
- Check consistency with other evidence and assumptions.
- Validate the accuracy of source data.
Internal Audit
- Enhances company’s internal control under corporate governance.
- Ideally, report to the Audit Committee, not to executives like the Finance Director.
- Helps in:
- Assessing risk and managing it.
- Designing and checking internal control systems.
- Conducting procedural audits and special investigations.
- Performing value-for-money audits.
- Testing IT controls.
- Essential collaboration with external auditors.
Collaboration Between Internal and External Auditors
- Internal auditors should maintain high standards in their work.
- External auditors must review internal auditors' work for quality assurance.
This lecture emphasized the importance of third-party reliance in auditing, the criteria for choosing these parties, and the crucial role of internal auditors in supporting external auditors while maintaining quality and responsibility in their own work.