The Center for Audit Quality reminded internal auditors that they have a role to play in the regular assessment of the job that the external auditor is doing.
In an update to its External Auditor Assessment Tool, released today, the CAQ states that while the audit committee should lead the initiative to review the performance of the external auditor: “It is appropriate to obtain observations on the external auditor from others within the company, including management and internal audit, accompanied by discussions with other key managers.”
The tool is designed to “assist audit committees in carrying out their responsibilities of appointing, overseeing, and determining compensation for the external auditor,” says the CAQ. The tool contains sample questions to help audit committees in four specific areas: quality of services and sufficiency of resources provided by the engagement team; quality of services and sufficiency of resources provided by the audit firm; communication and interaction with the external auditor; and auditor independence, objectivity, and professional skepticism.
Although the language about internal audit’s role isn’t new to the assessment tool—a CAQ spokesperson confirmed that the assertion was included in previous versions of the tool released in 2015 and 2017—it serves as a reminder that internal audit can play a part in the review, including looking at how much external audit relies on the existing work of internal audit.
“Internal auditors serve as the ‘eyes and ears’ for management, the board, and the audit committee. Thus, the internal audit function provides a critical, independent point of view, which can help to inform the audit committee’s assessment of the external auditor,” said Cindy Fornelli, executive director of the CAQ in an emailed statement.
The tool also includes a sample form and rating scale for obtaining input from company personnel, including internal auditors, about the external auditor, as well as resources for additional reading. The sample form, which could be used as a template to gather internal auditor feedback, includes such questions as:
- Does the external auditor proactively identify opportunities and risks?
- Is the external auditor responsive and communicative?
- Does the external auditor understand our business and our industry?
Is the external auditor forthright in dealing with difficult situations? And many others.
External Audit Reliance on Internal Audit
The review tool also provides some questions for the audit committee to ask regarding the reliance of external audit on the work of internal audit. Those include:
- If the external auditor is placing reliance on management and internal audit testing, did the audit committee agree with the extent of such reliance?
- Were there any significant differences in views between the internal auditors and the external auditor? If so, were they resolved in a professional manner?
- Did the external auditor change or increase their testing due to internal audit findings, if applicable?
While internal audit must be careful to maintain its independence and objectivity and it is the job of the audit committee to assess the job of the external auditors, internal audit can be a helpful advisor to the audit committee in that role. The CAQ also reminded the audit committee that it should be on alert if “management displays a strong preference for or a strong opposition to retaining the external auditor—and follow up as appropriate to understand the reasons.”
An assessment of the external auditor’s performance should be conducted “at least annually,” according to the CAQ. 