Maxi Sales Corp. maintains a large, full-time internal audit staff that reports directly to the chief accountant. Audit reports prepared by the internal auditors indicate that the structure is functioning as it should be and that the accounting records are reliable. The external auditor will probably:
A) eliminate tests of controls.
B) increase the depth of the procedures to obtain an understanding of controls directed towards operating efficiency.
C) avoid duplicating the work performed by the internal audit staff.
D) place limited reliance on the work performed by the internal audit staff.

Question

Quizplus · Accepted Answer

The external auditor should place limited reliance on the work performed by the internal audit staff. While the internal audit staff may have provided assurance on the reliability of accounting records, the external auditor still needs to independently test the effectiveness of internal controls and the accuracy of financial statements. This is because the internal audit staff may not have the same level of independence and objectivity as the external auditor.