February 2010 – Task Force finalized draft for discussion with IAASB and IAASB CAG in March 2010

1. Internal Audit – Project Status • February 2010 – Task Force finalized draft for discussion with IAASB and IAASB CAG in March 2010 • IAASB expected to approve draft for public exposure in its June meeting (prior to next IESBA meeting)

2. Internal Audit • IAASB Revision to ISA 610 Using the Work of the Internal Audit Function • Ethical principles of internal auditors • Direct assistance by internal auditors

3. Ethical Principles of Internal Auditors • Endeavour to maintain consistency with the Code of Ethics • Objectivity • Consistent with the Code • Competence • Internal auditors may not be a member of an IFAC member body, therefore refers to “competence” as opposed to “professional competence”

4. Direct Assistance Expansion of scope of ISA 610 External auditor to evaluate level of competence and degree of objectivity of internal auditors Direct, supervise and review work performed Internal auditors are not independent therefore work is presumed to provide less reliable evidence Direction, supervision and review will ordinarily be more extensive

5. Extract from ISA - Requirements If the external auditor plans to use internal auditors to provide direct assistance on the engagement, the external auditor shall evaluate the level of competence and degree of objectivity of the internal auditors who will be providing such assistance. The external auditor shall direct, supervise and review the work performed by internal auditors on the engagement in accordance with ISA 220. The level of direction, supervision and review shall recognize that internal auditors are not independent of the entity and therefore their work is presumed to provide less reliable evidence than work performed directly by the external auditor.

6. Extract from ISA - Guidance In addition to using the work of the internal audit function, the external auditor may receive direct assistance from the internal auditors in carrying out audit procedures. As individuals in the internal audit function are not independent of the entity as is required of the external auditor when expressing an opinion on financial statements, audit procedures performed by internal auditors in connection with the external audit are presumed to provide less reliable evidence than work performed directly by the external auditor themselves. Therefore, the direction, supervision or review of the audit procedures performed by the internal auditors will ordinarily be more extensive than if members of the engagement team had performed the work.

7. Management Responsibilities A firm shall not assume a management responsibility for an audit client (290.165) Whether an activity is a management responsibility depends on circumstances and requires the exercise of judgment (290.163) Example that would generally be considered a management responsibility… directing and taking responsibility for the actions of the entity’s employees (290.163)

8. Clarification needed? • No • Depends on the circumstances and requires judgment • External audit is not a management responsibility • Yes • Without clarification readers might inappropriately interpret example as encompassing direct internal auditor assistance

9. If clarification is needed • Should the Code clarify that directing, supervising and reviewing the work of internal auditors when they provide direct assistance on a non-assurance engagement is not a management responsibility

10. Approaches to clarification • Revise Code • Project proposal • Exposure Draft • Revision would be in Code • Interpretation • Faster • Should not interpret or clarify the meaning • External auditor responsible for the audit • Staff Q&A • Non authoritative • Not with the Code

11. Any other comments?