Building harmonious relationship between external and internal auditors
By Jessica Mae Gois
Sometimes, we get unmotivated when we work with people who are unresponsive and uncooperative. We need
harmonious relationships to get things done with accuracy, efficiency and timeliness. Here, effective
communication and proper timing play vital roles to achieve the desired results. While effective
communication creates an environment where both parties can coordinate and collaborate to achieve
their own goals and objectives, right timing allows both parties to achieve those goals and objectives
in a shorter period or just at the right point in time.
Relationship between internal and external auditors is described in several of the Philippine Standard
on Auditing (PSA) such as PSA 240 (Redrafted), 315 (Revised 2019) and, above all, 610 (Revised 2013).
PSA 240 (Redrafted): The auditor's responsibilities relating to fraud in an audit of financial statements,
states in paragraph 19 that "For those entities that have an internal audit function, the auditor shall
make inquiries of internal audit to determine whether it has knowledge of any actual, suspected or
alleged fraud affecting the entity, and to obtain its views about the risks of fraud."
PSA 315 (Revised 2019): Identifying and assessing the risks of material misstatement through understanding
of the entity and its environment, states in paragraph 14(a) that "The risk assessment procedures shall
include inquiries of management and of other appropriate individuals within the entity, including
individuals within the internal audit function (if the function exists)."
PSA 610 (Revised 2013): Using the work of internal auditors, states in paragraph 21 that "If the external
auditor plans to use the work of the internal audit function, the external auditor shall discuss the
planned use of its work with the function as a basis for coordinating their respective activities."
When the abovementioned duties and responsibilities of an external auditor are duly executed but the internal
auditor failed to contribute his part, or when the internal auditor is enthusiastic to work hand in hand but
the external auditor does not communicate with him, the gate to harmonious relationship will not open.
An effective and efficient auditor should practice a good work relationship. As described in the PSA, external
and internal audit are complementary functions where – the external auditors can rely on the work of internal
auditors to the extent that the former may use pieces of evidence and reports obtained from latter to assist
them in their audit work in understanding the nature of organization and its control environment, including
high-risk areas that deserve special attention. However, external auditors should ensure to maintain their
independence, objectivity and professional skepticism in drawing conclusions from it; and the internal audit's
support to external audit when there are inquiries and need for assistance on related resources.
The advantages of building harmonious relationship between internal and external audits are as follows:
It will ensure that both parties will coordinate and share valuable information for the output that can be of
benefit to the organizations they serve, while maintaining clear boundaries in order to preserve their independence
and objectivity and to avoid conflicts of interest.
Open communication sets the stage for a more efficient audit process. This means that the audit teams can align
the internal and external audit work plans to benefit from their complementary skills and individual areas of
expertise, and to minimize duplication of effort and identify areas where the teams can collaborate.
Open communication also welcomes diverse opinions where audit teams can factor their insights and perspectives
before arriving at a conclusion.
Good work relationship helps ensure that audit resources are directed towards the high-risk areas of the
organization.
The audit teams can plan the timing of their work to minimize disruption and interference with key members of
staff. This also gears to the accomplishment of work in a shorter period or in a timely manner when the
information is most useful for decision-making.
The audit teams can immediately inform, adhere and/or address the key events, changes and challenges that may impact
the organization, the work of either teams, or both.
Good work relationship can give peace. Instead of spending time and energy dealing with negativity, audit teams can
focus on opportunities such as career and personal development.
As internal and external audit functions are both vital for the effective governance of an organization, both teams
should take advantage of the harmonious relationships to make them more engaged with work, elevate the team morale,
improve career potential, and attain the best interests of the organization they serve.
Jessica Mae Gois, is an audit manager of Paguio, Dumayas & Associates, CPAs (PrimeGlobal Philippines),
an institutional member of the Association of CPAs in Public Practice (Acpapp). The opinion of the writer does not
reflect in any way the opinion of these institutions.