International Federation of Accountants

ISA 610 Use of the Work of Internal Auditors

New York, NY October 17-19, 2011

Comments received on exposure

• Direct assistance not to be permitted or permitted in very limited circumstances (primarily14AR, CESR, IDW, FAOA) • Direct assistance permitted only in limited circumstances (primarily IOSCO, UK AIU&APB, Basel, IRBA, CEBS, CPAB, FEE, JICPA) • Inconsistency with the Code that needed to be addressed (primarily 14AR, ACCA, FEE, Basel, IRBA) • Inconsistency with the Code that could not be resolved (IDW)

Comments received on exposure

• Reasons for not permitting included: – Blurring of roles of external and internal auditors. Perceived independence as well as actual independence may be affected if IAs are used to a significant extent.

– Inconsistency with the Code which requires members of the engagement team to be independent – Could undermine confidentiality regarding results of the audit procedures – Risk of over or undue use of internal auditors due to fee pressure

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Amendments to ISA 610 to address concerns

Prohibition on direct assistance to perform procedures: – designed to respond to a significant risk of material misstatement; and – on areas on which the internal auditors already have been involved • Requirement to formalize arrangements with the entity re use of internal auditors • Requirement for external auditors to check back to the underlying audit evidence • Greater clarity on circumstances in which internal auditors may be used to provide direct assistance

IESBA Task Force Proposals

• The definition of engagement team should be modified to explicitly scope out internal auditors providing direct assistance • The auditor should be required to communicate to those charged with governance the planned use of direct assistance from internal auditors • The requirement regarding the prohibition of using direct assistance when there are significant threats to the objectivity of the internal auditor, should be modified to prohibit an auditor from using direct assistance if the threats to objectivity cannot be reduced to an acceptable level • Alignment of certain wording to IESBA Code

IAASB Response to the TF Proposals

• The IAASB agreed that the ISA 610 should be adjusted to clarify that communication of planned use of indirect assistance should be made to those charged with governance • The IAASB did not believe that a change was necessary to the ISA 610 to refer to threats and safeguards as such a concept has not previously been used and would need to be defined or explained. The IAASB believes that paragraphs paragraph 26 when together taken with 27, 28, and 30 would achieve the same result.

• The IAASB supported the amendments to the ISA 610 which aligned certain wording to that used in the IESBA Code

Discussion

Points for discussion

• The IESBA members are asked to consider the issues raised by the Task Force and the IAASB’s response • The IESBA members are asked to consider the completeness of the issues raised by the Task Force