AUDB323 Audit and Investigation

Tutorial 5
Question 1

In some areas of work, there are similarities between the work performed by both
external and internal auditors. Therefore, where such similarities exist, the external
auditor may wish to rely on the work of the internal auditor, as this will save both time
and cost in conducting the external audit.

(a) Before an external auditor can place reliance on the internal audit function, outline
the points, which the external auditor must consider in evaluating the effectiveness
of internal audit.

(b) Briefly describe four (4) areas of work where the external auditor may want to use
the work already performed by the internal auditor, when he carries out an audit of
the client organization.

Question 2

An auditing standard has been issued, ISA 620 Using the Work of an Expert.

You are carrying out the audit of Ambon Construction Bhd, a listed company. The
company’s business includes large civil engineering contracts such as the construction of
buildings and roads. It also owns investment properties which are let to third parties and
these comprise offices and industrial buildings.

During the year ended 31 December 2013, the company received a substantial claim for
damages from Bimbo Manufacturing for faults in a building it had constructed. This claim
includes the costs of repairs and damages, as the customer alleges that the building
cannot be used because of the faults, so alternative accommodation has had to be found.
The company has obtained advise on the likely outcome of this claim from a local solicitor.

Describe the factors you would consider and the other evidence you would obtain to
enable you to assess the reliability of the legal advise obtained from the local solicitor on
the outcome of the claim from Bimbo Manufacturing.