You are the audit manager in charge of the audit of Coral Bites, a company which runs a chain of snack bars operating in a number of beach holiday resorts. Your firm has been the auditor for a number of years and has always had to substantively test cash sales because of a lack of control over the recording of takings. The auditor’s reports to date have been unmodified.
You have recently been informed that the company has taken on a newly qualified chartered accountant as chief internal auditor and an unqualified assistant internal auditor. Since their appointment half way through the year ended 31 December 20X8 the two have spent most of their time carrying out substantive procedures on cash sales.
The directors are hopeful that your audit fee this year will decrease because you will be able to use the work carried out by the internal auditors.
Required:
(a) Explain the issues that will be relevant to your firm in deciding whether you can use the work performed by the internal auditors.
(b) Explain how much reliance to place on that work.
