The following questions deal with internal and governmental auditing. Choose the best response. 

a. Which of the following statements regarding the use of internal auditors is correct? 

(1) The auditor cannot rely on the work of internal auditors because they are not independent of the client, their employer. 

(2) The auditor can rely on the work of internal auditors for any decision because internal auditors are required to report to the audit committee of the board of directors; thus they are independent of the client. 

(3) The auditor can rely on the work of internal auditors in limited circumstances, as long as they are not making decisions with a high degree of subjectivity, or decisions that require judgment and assessment. 

(4) The use of internal auditors can only be allowed if the audit firm is contracting with and reimbursing the internal auditors. 

b. In assessing whether the internal audit function applies a systematic and disciplined approach, the independent auditor most likely would consider the 

(1) Adequacy and use of documented internal audit procedures. 

(2) Organizational status of the director of internal audit. 

(3) Entity’s ability to continue as a going concern for a reasonable period of time. 

(4) Internal auditor’s assessment of inherent risk and whether it is comparable to the independent auditor’s assessment. 

c. The Lawrence Center for the Performing Arts receives government financial assistance and is subject to Government Auditing Standards. The auditor’s responsibilities associated with this engagement include all of the following except 

(1) Assessing whether management has identified laws and regulations that have a direct and material effect on determination of amounts in the financial statements. 

(2) Obtaining an understanding of the impact of laws and regulations that have a direct and material effect on the determination of financial statement amounts. 

(3) Communicating to management and the audit committee that an audit performed purely in accordance with generally accepted auditing standards may not be sufficient if there are additional regulatory requirements. 

(4) Obtaining sufficient evidence to form an opinion on internal control over compliance.