Pipara & Co LLP

Using the Work of an Auditor’s Expert

Introduction

Scope of this SA
  1. This Standard on Auditing (SA) deals with the auditor’s responsibilities regarding the use of an individual or organisation’s work in a field of expertise other than accounting or auditing, when that work is used to assist the auditor in obtaining sufficient appropriate audit evidence.
  2. This SA does not deal with:
  1. Situations where the engagement team includes a member with expertise in specialised area of accounting or auditing, which is dealt with in SA 2201; or

The auditor’s use of the work of an individual or organisation possessing expertise in a field other than accounting or auditing, whose work in that field is used by the entity to assist the entity in preparing the financial statements(a management’s expert), which is dealt with in SA 5002.

The Auditor’s Responsibility for the Audit Opinion
  1. The auditor has sole responsibility for the audit opinion expressed, and that responsibility is not reduced by the auditor’s use of the work of an auditor’s expert. Nonetheless, if the auditor using the work of an auditor’s expert, having followed this SA, concludes that the work of that expert is adequate for the auditor’s purposes, the auditor may accept that expert’s findings or conclusions in the expert’s field as appropriate audit evidence.
Effective Date
  1. This SA is effective for audits of financial statements for periods beginning on or after April 1, 2010.
Objectives
  1. The objectives of the auditor are:
  1. To determine whether to use the work of an auditor’s expert; and
  2. If using the work of an auditor’s expert, to determine whether that work is adequate for the auditor’s purposes.

1 SA 220, “Quality Control for an Audit of Financial Statements”, paragraph A20.

2 SA 500, “Audit Evidence”, paragraphs A34-A48.

Definitions
  1. For purposes of the SAs, the following terms have the meanings attributed below:
  1. Auditor’s expert – An individual or organisation possessing expertise in a field other than accounting or auditing, whose work in that field is used by the auditor to assist the auditor in obtaining sufficient appropriate audit evidence. An auditor’s expert may be either an auditor’s internal expert (who is a partner or staff, including temporary staff, of the auditor’s firm or a network firm), or an auditor’s external expert. (Ref: Para. A1-A3)
  2. Expertise – Skills, knowledge and experience in a particular field.

Management’s expert – An individual or organisation possessing expertise in a field other than accounting or auditing, whose work in that field is used by the entity to assist the entity in preparing the financial statements.

Requirements
Determining the Need for an Auditor’s Expert
  1. If expertise in a field other than accounting or auditing is necessary to obtain sufficient appropriate audit evidence, the auditor shall determine whether to use the work of an auditor’s expert. (Ref: Para. A4-A9)
Nature, Timing and Extent of Audit Procedures
  1. The nature, timing and extent of the auditor’s procedures with respect to the requirements in paragraphs 9-13 of this SA will vary depending on the circumstances. In determining the nature, timing and extent of those procedures, the auditor shall consider matters including: (Ref: Para. A10)
  1. The nature of the matter to which that expert’s work relates;
  2. The risks of material misstatement in the matter to which that expert’s work relates;
  3. The significance of that expert’s work in the context of the audit;
  4. The auditor’s knowledge of and experience with previous work performed by that expert; and
  5. Whether that expert is subject to the auditor’s firm’s quality control policies and procedures. (Ref: Para. A11-A13)
The Competence, Capabilities and Objectivity of the Auditor’s Expert
  1. The auditor shall evaluate whether the auditor’s expert has the necessary competence, capabilities and objectivity for the auditor’s purposes. In the case of an auditor’s external expert, the evaluation of objectivity shall include inquiry regarding interests and relationships that may create a threat to that expert’s objectivity. (Ref: Para. A14-A20)
Obtaining an Understanding of the Field of Expertise of the Auditor’s Expert
  1. The auditor shall obtain a sufficient understanding of the field of expertise of the auditor’s expert to enable the auditor to: (Ref: Para. A21-A22)
  1. Determine the nature, scope and objectives of that expert’s work for the auditor’s purposes; and
  2. Evaluate the adequacy of that work for the auditor’s purposes.
Agreement with the Auditor’s Expert
  1. The auditor shall agree, in writing when appropriate, on the following matters with the auditor’s expert: (Ref: Para. A23-A26)
  1. The nature, scope and objectives of that expert’s work; (Ref: Para. A27)
  2. The respective roles and responsibilities of the auditor and that expert; (Ref: Para. A28-A29)
  3. The nature, timing and extent of communication between the auditor and that expert, including the form of any report to be provided by that expert; and (Ref: Para. A30)
  4. The need for the auditor’s expert to observe confidentiality requirements. (Ref: Para. A31)
Evaluating the Adequacy of the Auditor’s Expert’s Work
  1. The auditor shall evaluate the adequacy of the auditor’s expert’s work for the auditor’s purposes, including: (Ref: Para. A32)
  1. The relevance and reasonableness of that expert’s findings or conclusions, and their consistency with other audit evidence; (Ref: Para. A33-A34)
  2. If that expert’s work involves use of significant assumptions and methods, the relevance and reasonableness of those assumptions and methods in the circumstances; and (Ref: Para. A35-A37)
  3. If that expert’s work involves the use of source data that is significant to that expert’s work, the relevance, completeness, and accuracy of that source data. (Ref: Para. A38-A39)
  1. If the auditor determines that the work of the auditor’s expert is not adequate for the auditor’s purposes, the auditor shall: (Ref: Para. A40)
  1. Agree with that expert on the nature and extent of further work to be performed by that expert; or
  2. Perform further audit procedures appropriate to the circumstances.
Reference to the Auditor’s Expert in the Auditor’s Report
  1. The auditor shall not refer to the work of an auditor’s expert in an auditor’s report containing an unmodified opinion unless required by law or regulation to do so. If such reference is required by law or regulation, the auditor shall indicate in the auditor’s report that the reference does not reduce the auditor’s responsibility for the audit opinion. (Ref: Para. A41)
  2. If the auditor makes reference to the work of an auditor’s expert in the auditor’s report because such reference is relevant to an understanding of a modification to the auditor’s opinion, the auditor shall indicate in the auditor’s report that such reference does not reduce the auditor’s responsibility for that opinion. (Ref: Para. A42)
Application and Other Explanatory Material
Definitions
Auditor’s Expert (Ref: Para. 6(a))

A1. Expertise in a field other than accounting or auditing may include expertise in relation to such matters as:

  • The valuation of complex financial instruments, land and buildings, plant and machinery, jewelry, works of art, antiques, intangible assets, assets acquired and liabilities assumed in business combinations and assets that may have been impaired.
  • The actuarial calculation of liabilities associated with insurance contracts or employee benefit plans.
  • The estimation of oil and gas reserves.
  • The valuation of environmental liabilities, and site clean-up costs.
  • The interpretation of contracts, laws and regulations.
  • The analysis of complex or unusual tax compliance issues.
  •  

A2. In many cases, distinguishing between expertise in accounting or auditing, and expertise in another field, will be straightforward, even where this involves a specialised area of accounting or auditing. For example, an individual with expertise in applying methods of accounting for deferred income tax can often be easily distinguished from an expert in taxation law. The former is not an expert for the purposes of this SA as this constitutes accounting expertise; the latter is an expert for the purposes of this SA as this constitutes legal expertise. Similar distinctions may also be able to be made in other areas, for example, between expertise in methods of accounting for financial instruments, and expertise in complex modeling for the purpose of valuing financial instruments. In some cases, however, particularly those involving an emerging area of accounting or auditing expertise, distinguishing between specialised areas of accounting or auditing, and expertise in another field, will be a matter of professional judgment. Applicable professional rules and standards regarding education and competency requirements for accountants and auditors may assist the auditor in exercising that judgment.

A3. It is necessary to apply judgment when considering how the requirements of this SA are affected by the fact that an auditor’s expert may be either an individual or an organisation. For example, when evaluating the competence, capabilities and objectivity of an auditor’s expert, it may be that the expert is an organisation the auditor has previously used, but the auditor has no prior experience of the individual expert assigned by the organisation for the particular engagement; or it may be the reverse, that is, the auditor may be familiar with the work of an individual expert but not with the organisation that expert has joined. In either case, both the personal attributes of the individual and the managerial attributes of the organisation (such as systems of quality control the organisation implements) may be relevant to the auditor’s evaluation.

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