External Audit Efficiency Through Reliance on Internal Audit Testing

Our client was a publicly traded reinsurance company operating across North America and Europe, with a complex financial reporting structure and multiple in-scope SOX entities. Given the company’s rapid growth and decentralized operations, audit costs and external auditor reliance had become key focus areas for management and the Audit Committee.

Over several fiscal years, the client experienced rising external audit fees driven by redundant testing and limited reliance on internal audit work. Despite having a mature internal audit function, the external auditors performed independent control testing for significant processes, citing gaps in documentation standards, evidence retention, and alignment with PCAOB reliance requirements. This lack of reliance led to:

• Duplicative testing across key controls (e.g., revenue recognition, Financial Reporting, AP, AR and Payroll).

• Increased year-end audit hours and extended fieldwork timelines.

• Escalating audit fees and resource strain on management and internal audit.

R&B Advisory partnered with the client’s Internal Audit leadership to strengthen reliance readiness and optimize coordination with the external audit firm. Our structured approach included:

1.   Maturity Assessment – Evaluated internal audit’s testing documentation, evidence protocols, and review sign-off process against PCAOB AS 2605 (Consideration of the Internal Audit Function).
2.  Reliance Enablement Framework – Developed standardized templates for control testing documentation, sampling methodology, and evidence archiving to align with external audit expectations.
3.  Cross-Functional Training – Conducted workshops with internal audit, accounting, and external audit teams to clarify roles, reliance criteria, and evidence sufficiency requirements.
4.  Pilot Reliance Testing – Implemented a pilot program for three major control areas (Revenue, Procure-to-Pay, and ITGCs) to validate that external auditors could place reliance on internal audit’s testing results.
5.  Continuous Improvement Protocol – Introduced quarterly quality reviews to sustain compliance with reliance standards and address external auditor feedback proactively.

Within one fiscal year, R&B Advisory’s initiatives drove measurable reductions in external audit workload and costs:

• 25% reduction in external audit testing hours across key process areas.

• 15% decrease in total annual audit fees due to reliance efficiencies.

• Full reliance achieved on internal audit testing for 60% of key controls by year-end.

• Enhanced collaboration and transparency between internal audit, management, and external auditors

By establishing reliance-ready testing standards, the internal audit team became a trusted assurance partner, enabling the external auditors to leverage their work confidently. The result was a leaner, more coordinated audit process with reduced cost, less disruption to operations, and stronger overall assurance coverage.