You are planning the audit of Budget Pty Ltd, which is a subsidiary of Premium Ltd. It was established to provide the group with access to the growing budget wine market. However, Budget Pty Ltd has found trading conditions difficult due to the current wine glut and has sustained significant losses and has a negative cash flow.

The CEO of Budget Pty Ltd, Anne Hale, has indicated that there is nothing to worry about as Premium Ltd has signed an agreement to support the company for as long as it takes to establish a presence in the budget wine market.

Budget Pty Ltd has an internal audit function that is attached to the accounting and finance division, and reports directly to the finance director in his capacity as chair of the audit committee.

During your review of internal audit, you have noted the following matters:

(i)   The staff of the internal audit function changed significantly during the year. The division employed three new staff to undertake the testing of the financial accounting records, while the more senior personnel who had previously done these tests concentrated on the performance auditing schedule of the internal audit function. The new staff had no previous audit or accounting experience.

(ii)  The work that has been documented appears to be quite thorough and competent. However, for some of the audit tests prescribed, the staff have not prepared detailed documentation of the work that has been completed. They have simply initialled the audit program and noted that the test has been satisfactorily performed.

Required:

 (a)      the appropriateness of the going concern basis for Budget Pty Ltd. Justify.

(b)       whether the external auditor can rely on the work of internal audit. Use reasons.