Theobald Ltd has an internal audit department that primarily focuses on audits of the efficiency and effectiveness of its production departments. The other main role of the internal audit department is auditing compliance with various government regulations surrounding correct disposal of waste and storage of raw materials at its five factories. Theobald Ltd’s internal audit department is run by Harry Potts, a CPA and a member of the Institute of Internal Auditors. There are three other members of the department, all of whom have experience in performance auditing and, in addition, have completed industry-run training courses in waste management and handling dangerous goods. Harry meets regularly with the chief production manager and sends monthly reports to the CEO and the board of directors. Your initial investigations suggest that Harry is highly regarded within Theobald Ltd, and his reports are often discussed at board meetings. In most cases, the board authorises the actions recommended in Harry’s reports with respect to major changes to production and logistics.

Required

Comment on the extent of reliance the external auditor should place on the work of the internal audit department at Theobald Ltd. Explain the likely impact of the internal audit department’s work on the audit plan.