Internal audit is an element of the Internal Control system established by management. Thus as external auditors are accustomed to place reliance on internal controls they will consider if reliance can be placed on this element.
Some of the objectives of internal audit are the same as those of the external auditor. For example, the internal auditor will perform work on the documentation and evaluation of accounting systems and internal controls and will carry out compliance and substantive tests. It makes economic sense to reduce the work of the external auditor by relying on work done by the internal auditor.
Basis of Co-Operation
The external auditor may utilize the work of the internal auditor in two ways:
a. By taking into account the work done by the internal auditor;
b. By agreeing with the management that internal audit will render direct assistance to the external auditor.