What are the factors to be considered by the auditor when determining the need to use work of an expert?

Let’s understand in detail about Standard on Auditing SA 620 Using the Work of an Auditor’s Expert :

ParticularsDetails
ScopeAuditor’s responsibilities in relation to the use of an expertise work (individual or organization) other than accounting or auditing which will assist in obtaining sufficient audit evidence
Non – Applicable1. Use of expertise who is specialized in an area of accounting or auditing per SA 220 2. Expertise work in a field which is used by the entity for preparing financial statements (Management’s expert) per SA 500
Effective DateAudit of financial statements for periods beginning on or after 1st April 2010
Auditor’s Objective1. Determine whether to use the work of an auditor’s expert 2. If yes, determine if that work is adequate for auditor’s purpose
Auditor’s ResponsibilitySolely responsible for the audit opinion expressed which is not reduced by the auditor’s use of the work of an expert. But subject to SA 620, the auditor may accept the expert’s finding and conclusion as an appropriate audit evidence
Need for ExpertTo obtain sufficient appropriate audit evidence, if expertise in a field other than accounting or auditing is required

I. Auditor’s Expert – “An individual or organization 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 the auditor’s internal expert or an external expert.

II. Management Expert – “An individual or organization 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. 

Nature, Timing, and Extent of Audit Procedures

To determine the nature, timing, and extent of audit procedures related to expert’s work, the following matters are to be considered by the auditor:

i. Nature of the subject

ii. Risk of material misstatement

iii. The significance of expert work to the audit

iv. Auditor’s knowledge of and experience with the expert’s work

v. If the expert is subject to the auditor’s firm quality control policies & procedures

Particulars

Details

Competence, Capabilities and ObjectivityAuditor should evaluate the expert’s competence, capabilities, and objectivity for the auditor’s purpose. W.r.t external expert, an inquiry regarding interest and relationships that may create a threat to that expert’s objectivity should be made
Understanding of the Field of ExpertiseAuditor should obtain sufficient understanding of the following: i. Nature, scope, and objectives of expert’s work ii. Evaluate the adequacy of expert work for audit purpose
Agreement with expert workAuditor should agree in writing the following: i. Nature, scope, and objectives of the expert work ii. Respective roles and responsibility iii. Nature, timing, and communication between the auditor and expert iv. The form of the report to be provided by expert v. Need for the expert to observe confidentiality requirements
Adequacy of expert workAuditor should evaluate the adequacy including: i. Relevance and reasonableness of the expert finding or conclusion ii. Consistency with other audit evidence iii. Relevance and reasonableness of any significant assumptions or methods used iv. Accuracy, completeness, and relevance of source data if any used
Inadequate expert workIf Auditor is of the opinion that expert’ work is not adequate, then: i. Determine the nature and extent of further work to be performed by the expert ii. Perform further audit procedures appropriate to the situation

Reference to the Auditor’s Expert in the Auditor’s Report

Reference to the auditor’s expert work should not be made in an auditor’s report containing an unmodified opinion unless required by law or regulation. If such reference is-

  • Required by law or regulation or
  • Relevant to an understanding of a modification to the auditor’s opinion, then

The auditor should indicate in the auditor’s report that the references do not reduce the auditor’s responsibility for the audit opinion

Example of Auditor’s Expert work

  • Valuation of complex financial instruments, land & buildings, machinery, intangible assets, impaired assets etc
  • Estimation of oil and gas reserves, actuarial calculation of liabilities etc
  • Valuation of environmental liabilities, site clean-up cost,
  • Interpretation of law, contracts, and regulation

What are the factors to be considered by the auditor when determining the need to use work of an expert?

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An individual or organization 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.

Scope of this ISA 620

ISA 620 deals with the auditor’s responsibilities relating to the work of an individual or organization 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.

The Auditor’s Responsibility for the Audit Opinion

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 ISA, 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 on or after 15 December 2009

Objective

The objectives of the auditor are:

  • To determine whether to use the work of an auditor’s expert; and
  • If using the work of an auditor’s expert, to determine whether that work is adequate for the auditor’s purposes.

Definitions

For definitions refer definitions section.

Requirements

Determining the Need for an Auditor’s Expert

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.

Nature, Timing and Extent of Audit Procedures

In determining the nature, timing and extent of those procedures, the auditor shall consider matters including;

  • The nature of the matter to which that expert’s work relates;
  • The risks of material misstatement in the matter to which that expert’s work relates;
  • The significance of that expert’s work in the context of the audit;
  • The auditor’s knowledge of and experience with previous work performed by that expert; and
  • Whether that expert is subject to the auditor’s firm’s quality control policies and procedures.

The Competence, Capabilities and Objectivity of the Auditor’s Expert

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.

Obtaining an Understanding of the Field of Expertise of the Auditor’s Expert

The auditor shall obtain a sufficient understanding of the field of expertise of the auditor’s expert to enable the auditor to;

  • Determine the nature, scope and objectives of that expert’s work for the auditor’s purposes; and
  • Evaluate the adequacy of that work for the auditor’s purposes.

Agreement with the Auditor’s Expert

The auditor shall agree, in writing when appropriate, on the following matters with the auditor’s expert:

  • The nature, scope and objectives of that expert’s work;
  • The respective roles and responsibilities of the auditor and that expert;
  • 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
  • The need for the auditor’s expert to observe confidentiality requirements.

Evaluating the Adequacy of the Auditor’s Expert’s Work

The auditor shall evaluate the adequacy of the auditor’s expert’s work for the auditor’s purposes, including:

  • The relevance and reasonableness of that expert’s findings or conclusions, and their consistency with other audit evidence;
  • 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
  • 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.

If the auditor determines that the work of the auditor’s expert is not adequate for the auditor’s purposes, the auditor shall:

  • Agree with that expert on the nature and extent of further work to be performed by that expert; or
  • Perform additional audit procedures appropriate to the circumstances.

Reference to the Auditor’s Expert in the Auditor’s Report

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 auditor’s opinion.

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.