What should the auditor do to assess reliance on a system of internal control?

To assess reliance on a system of internal control, it is essential for the auditor to test the work of internal auditors. This approach allows the auditor to evaluate the effectiveness and efficiency of the internal audit function, as well as to understand the quality of the testing performed by those internal auditors. By assessing the internal auditors' methods, findings, and conclusions, the external auditor can gain insight into the organization's internal control systems.

Testing the work of internal auditors involves examining their documentation and the procedures they followed, helping the external auditor determine whether they can place reliance on those internal controls when planning their own audit procedures. If the internal auditors have performed comprehensive and effective testing, the external auditor may reduce the extent of their own substantive testing, thereby streamlining the audit process.

In contrast, relying solely on substantive testing, reviewing past audit conclusions, or conducting a thorough audit of all transactions does not directly address the assessment of internal control reliance. While substantive testing is a critical part of the audit process, it primarily verifies the accuracy of transactions rather than the effectiveness of internal controls. Reviewing past audit conclusions provides some historical context but does not assess the current efficacy of internal controls. Conducting a thorough audit of all transactions would be impractical and inefficient when the goal is to