QUESTION THREE (20 MARKS)

Your client is considering whether to recruit internal auditors or to outsource the internal audit function. If outsourced, the team will be required to undertake monthly visits to test controls at the various shops across the country, and to perform ad hoc operational reviews at shops and head office. ISA 260 (Revised and Redrafted) Communication with those Charged with Governance deals with the auditors responsibility to communicate with those charged with governance in relation to an audit of financial statements.

Required:

1. Explain the factors the auditor should consider before relying on the work of the outsourced internal auditor (7 Marks)
2. State and explain two specific responsibilities of those charged with governance (5 Marks)
3. Briefly explain the inherent limitation of the internal control systems. (8 Marks)