AUASB told to revise standards on use of internal auditors
Major accounting bodies want to see the AUASB revise its prohibition on internal auditors providing direct assistance in external audits.
Professional bodies are encouraging the Auditing and Assurance Standards Board to reconsider its current position in relation to internal auditors providing direct assistance in ASA 610 ahead of the new sustainability reporting requirements.
In a joint submission, CA ANZ and CPA Australia explained that in Australia, ASA 610 Using the Work of Internal Auditors prohibits an auditor's use of direct assistance by a client's internal audit function.
The newly issued ISSA 5000 General Requirements for Sustainability Assurance Engagements does not prohibit the use of direct assistance in sustainability assurance engagements but does contemplate that some jurisdictions may do so.
The AUASB is currently looking to issue an Australian equivalent of ISSA 5000.
The joint bodies said the landscape of auditing, corporate governance and assurance had shifted significantly since AUASB introduced the prohibition over a decade ago.
"The primary reason Australia departed from ISA 610 in 2013, prohibiting internal auditors from providing direct assistance, was that the board, at the time, determined it was necessary to preserve the independence of the external assurance process," the submission said.
"This decision was aimed at maintaining market and investor confidence, as the use of internal auditors’ work was seen as potentially compromising the external auditor's independence."
The two bodies encouraged the AUASB to revisit its original position to ensure it remained aligned with the "rapidly changing corporate environment and auditing landscape".
Revising this position would ensure better alignment with international standards, they said.
The International Standard on Auditing (ISA) 610 does not prohibit the use of internal auditors to provide direct assistance. Consistent with ISA 610, the proposed standard for sustainability assurance, ISSA 5000 also does not prohibit the use of internal auditors to provide direct assistance in sustainability assurance engagements.
"Therefore, we remain concerned about the potential unintended consequences, especially in the international context," CA ANZ and CPA Australia said.
"Jurisdictions such as the United States, Canada and New Zealand permit the use of direct assistance by internal auditors in external audits under certain conditions.
"There may be instances where certain financial or sustainability reporting components of an Australian group’s operations are prepared by a service centre in a country that permits direct assistance."
The major accounting bodies explained that if auditors in that country operate under local auditing standards and use direct assistance per ISA 610 or ISSA 5000, Australian auditors would be required to evaluate the impact of this practice on the overseas auditors’ work and the audit evidence required under Australian standards.
"Guidance from the AUASB on this matter will be essential to ensure the consistent application of the sustainability assurance standard," the bodies said.
Allowing internal auditors to assist in assurance could also leverage their familiarity with the organisation’s operations and controls, potentially improving the quality and efficiency of these assurance engagements, the submission said.
"This could be particularly beneficial in areas where internal auditors have developed specialised knowledge and expertise such as in sustainability reporting," it said.
The professional bodies have previously highlighted the existing shortage of financial statement auditors in financial reporting – a situation which they said is likely to intensify with the increasing demand for sustainability assurance.
"Enabling internal auditors to provide direct assistance—within a robust framework and under the independence safeguards detailed in ISA 610—should help alleviate these pressures, particularly as the sustainability assurance ecosystem continues to mature," the submission said.
"Furthermore, in recent years, the role of experts in the auditing process has evolved significantly. We encourage the AUASB to consider whether internal auditors are better viewed as experts within their specific domains.
"This perspective invites a reassessment of whether their independence is a necessary prerequisite for providing direct assistance in the external assurance process. As an expert, they will be assessed based on their objectivity."
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