Final answer:
Auditors are likely to rely on internal audit work for financial statement amounts that need little subjective evaluation, providing a basis for efficient external audit work. External auditors must, however, independently assess the risk of material misstatement and not solely rely on internal audit conclusions.
Step-by-step explanation:
An auditor is most likely to rely on the work done by internal auditors when financial statement amounts judged by the auditor require little or no subjectively evaluated audit evidence. Relying on the work of internal auditors in this scenario often allows for a more efficient allocation of auditing resources. The internal audit team's expertise and familiarity with the company's processes can provide a strong foundation for the external auditor's own assessment.
However, sole reliance on the internal auditors' conclusion that the risk of material misstatement at the overall financial statement level is negligible would not be advisable. External auditors are required to independently assess the risk of material misstatement and consider the appropriateness and quality of the audit evidence gathered, whether from internal or external sources.
It is important for the external auditor to evaluate the internal auditors' competence, objectivity, and work performance. A detailed analysis assists in identifying discrepancies and forces a closer look at the quality of the work performed by internal auditors before deciding on the extent of reliance.