Alpha Ltd.

Alpha Ltd.’s internal audit function reports administratively to the CFO but has unrestricted access to the Audit Committee. The Audit Committee approves the internal audit plan and has the authority to appoint or remove the Chief Internal Auditor.

The internal audit team consists of highly experienced professionals who possess relevant technical competence. During the year, the internal auditors performed detailed testing of manual journal entries and identified several unusual entries.

The external auditor proposes to use this work for the statutory audit.

The engagement partner makes the following observations:

The reporting relationship with the CFO necessarily prevents the external auditor from using the internal audit function’s work.
The Audit Committee’s involvement may provide support for the objectivity of the internal auditors.
The high level of competence of the internal auditors can compensate for deficiencies in organisational policies affecting their objectivity.
Even where objectivity and competence are adequate, the external auditor must consider the nature and extent of the work before deciding whether it can be used.

Which ONE of the following is correct?

A. Statements 1 and 3 only.

B. Statements 2 and 4 only.

C. Statements 1, 2 and 4 only.

D. Statements 2, 3 and 4 only.