Problem 5 Independent auditors should consider the work performed by internal auditors when planning the engagement. Internal auditors often play an important role in the internal control system of the client and their work can impact the external (independent) auditor's assessment of control risk. Additionally, the independent auditor may be able to use some of the internal auditors work as audit evidence. a. What is the most important difference between internal and external auditors? Hint: It is the reason that external auditors can issue opinions on the audited financial statements and internal auditors cannot. b. What is the primary objective of the external auditor? c. What is (are) the primary objective(s) of the internal auditors? d. What should the external auditors consider as they decide how much reliance they should place on the internal auditors' work? Problem 6 Client investments in financial instruments such as stocks, bonds, derivative instruments, etc. have a high level of inherent risk. Consequently, companies holding these instruments should establish effective internal control over their investments. a. Which functions should be segregated to provide good internal control over financial investments? b. Identify five internal control procedures, other than segregation of duties, that should be established for financial investments. Problem 7 If an audit client has a material amount of inventory, physical observation of the inventory is presumed to be a mandatory audit procedure. a. Describe the auditors' role in planning the physical inventory count. b. What procedures should the auditors perform during their observation of a client's physical inventory? c. Why do auditors document their test counts of inventory in their working papers