Part A In determining whether and to what extent to use the work of internal auditors, ASA 610 Using the Work of Internal Auditors, paragraph 8 states that the external auditor shall determine:

a. Whether the work of the internal auditors is likely to be adequate for purposes of the audit;

and

b. If so, the planned effect of the work of the internal auditors on the nature, timing or extent of the external auditor's procedures.

Required

In relation to ASA 610, explain the factors the external auditor will consider when evaluating the work of the internal auditor.

Part B ZPM is a listed limited-liability company with a year-end of 30 June. ZPM's main activity is selling home improvement or ‘do-it-yourself’ (DIY) products to the public. Products sold range from nails, paint and tools to doors and showers; some stores also sell garden tools and furniture. Products are purchased from approximately 200 different suppliers. ZPM has 103 stores in 8 different countries.

ZPM has a well-staffed internal audit department, who report on a regular basis to the audit committee. Areas where the internal and external auditors may carry out work include:

1. attending the year-end inventory count in 30 stores annually. All stores are visited on a rotational basis 2. checking the internal controls over the procurement systems (e.g. ensuring a liability is only recorded when the inventory has been received)

3. reviewing the operations of the marketing department.

Required

For each of the above three areas, discuss:

a. the objectives of the internal auditor

b. the objectives of the external auditor

c. whether the external auditor will rely on the internal auditor and, if reliance is required, the extent of that reliance.