When the chief audit executive (CAE) evaluates the possibility of relying on external auditors' work, the primary focus should be on examining the objectivity and any perceived or actual conflicts of interest that might affect the external auditors' work. Ensuring that the external auditors are objective and free from conflicts is crucial for determining whether their work can be relied upon by the internal audit activity.

IIA Standard 2050 – Coordination and Reliance:

This standard requires that the internal audit activity coordinates its efforts with external auditors to ensure proper coverage and minimize duplication of efforts. When relying on external auditors, the CAE must assess the external auditors’ objectivity and independence.

Objectivity and Conflicts of Interest:

Objectivity refers to the unbiased mental attitude that allows external auditors to perform their work with integrity and impartiality. Conflicts of interest, whether perceived or actual, can compromise this objectivity. The CAE needs to ensure that external auditors are free from any relationships or interests that could affect their judgment.

IIA Practice Advisory 2050-2:

The advisory suggests that the internal audit activity should evaluate the competence, objectivity, and independence of external auditors before relying on their work. A thorough examination of potential conflicts of interest is essential to ensure that the reliance on their work is justified.

Option A (Perform comprehensive background checks): While background checks may be useful, the primary focus should be on objectivity and conflicts of interest.

Option B (Recalculate all financial calculations): This approach is excessive and unnecessary if the external auditors’ work can be relied upon.

Option D (Review audit tests in previous audits): While reviewing previous work is important, it does not address the key issue of objectivity and independence.

Detailed Explanation:Why Not Other Options?Conclusion: Option C is correct because the CAE must focus on ensuring that external auditors are objective and free from conflicts of interest, which is essential for relying on their work, in accordance with IIA standards.