The Auditing Standards Board (ASB) has released updated guidance on the use of internal audit work in an external audit. SAS No. 128 applies to financial statement audits performed for periods ending on or after December 15, 2014.
This guidance supersedes SAS No. 65 (AU-C sec. 610) and amends Statement on Quality Control Standards No. 8 and various sections within SAS No. 122 for planned reliance on internal audit work or the provision of direct assistance by internal audit in the external audit.
The new standard was modeled after International Standard on Auditing (ISA) 610 (Revised 2013), signaling the continued effort at U.S. and international auditing standards convergence.
As highlighted by the Journal of Accountancy, “The new standard introduces the concept of a systematic and disciplined approach, which is consistent with ISA 610 (Revised 2013). SAS No. 128 requires that the external auditor evaluate the application by the internal audit function of a systematic and disciplined approach, including quality control, as a prerequisite for being able to use the work of the internal audit function.”
Paragraphs A12 through A14 of SAS No. 128 describe the structural qualities that differentiate internal audit from other monitoring control activities performed within an organization. Such structural qualities include risk assessments, defined workprograms, documentation, reporting and a formal quality control system.
This SAS does not apply to those situations where the entity does not have an internal audit function, the external auditor does not expect to use the work of internal audit, or the responsibilities and activities of internal audit are not relevant to the external audit.
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