IAS 620 using the work of expert states:
When using work performed by an expert, the auditor
should obtain sufficient appropriate audit evidence that such is adequate for
the purposes of the audit.
should obtain sufficient appropriate audit evidence that such is adequate for
the purposes of the audit.
In other words it is up to the auditors to confirm
whether or not the work performed
whether or not the work performed
by the expert is ‘adequate’ fro the audit-the
responsibility remains, as always, with them.
In general the auditor’s programmed of work will
provide them with sufficient reliable relevant evidence to enable them to
substantiate their opinion. However, there can be circumstances where the
auditor’s knowledge is insufficient and they may then need to rely on the
opinions of experts or specialists to help them form an opinion.
provide them with sufficient reliable relevant evidence to enable them to
substantiate their opinion. However, there can be circumstances where the
auditor’s knowledge is insufficient and they may then need to rely on the
opinions of experts or specialists to help them form an opinion.
What is an expert?
What is an expert, in this context?
IAS 620 defines an expert as:
A person or firm possessing special skill,
knowledge and experience in a particular field other than accounting or
auditing.
knowledge and experience in a particular field other than accounting or
auditing.
Examples of specialists whose work may be relied
upon by auditors include:
upon by auditors include:
·
Values-on
the value of fixed assets such as freehold and leasehold property or more
rarely plant and machinery and on the value of specialist stock in trade such
as beers, wines and spirits or specialist stock such as jewelers.
Values-on
the value of fixed assets such as freehold and leasehold property or more
rarely plant and machinery and on the value of specialist stock in trade such
as beers, wines and spirits or specialist stock such as jewelers.
·
Quantity
surveyors – on the value of work done on long-term contracts.
Quantity
surveyors – on the value of work done on long-term contracts.
·
Actuaries
– on the liability to be included for pension scheme liabilities.
Actuaries
– on the liability to be included for pension scheme liabilities.
·
Geologists
– on the quantity and quality of mineral reserves.
Geologists
– on the quantity and quality of mineral reserves.
·
Stockbrokers
– on the value of stock exchanges securities.
Stockbrokers
– on the value of stock exchanges securities.
·
Lawyers –
on the legal interpretation of contracts and agreements, or the outcome of
disputes and litigation.
Lawyers –
on the legal interpretation of contracts and agreements, or the outcome of
disputes and litigation.
Points to consider
In general, in deciding whether the auditor needs
to have specialist opinion they will consider:
to have specialist opinion they will consider:
·
The
knowledge and abilities of the audit team – does it have the expertise to deal
with the issue itself? If not an expert may have to be called in.
The
knowledge and abilities of the audit team – does it have the expertise to deal
with the issue itself? If not an expert may have to be called in.
·
The risk
of a material misstatement based on the nature, complexity and materiality of
the material being considered.
The risk
of a material misstatement based on the nature, complexity and materiality of
the material being considered.
·
The
quantity and quality of other audit evidence which can be obtained.
The
quantity and quality of other audit evidence which can be obtained.
Often auditors have little other evidence on which
to base their opinion on such values. Property companies incorporate values of
properties in their accounts, the source of such valuations being specialist
commercial values. The auditors may have little other reliable evidence except
the specialist value’s opinion.
to base their opinion on such values. Property companies incorporate values of
properties in their accounts, the source of such valuations being specialist
commercial values. The auditors may have little other reliable evidence except
the specialist value’s opinion.
The expert can be hired either by the auditor or
the client – either way the client is likely to end up paying – so cost
considerations are important. The auditor should involve experts only when no
other sufficient appropriate evidence is available.
the client – either way the client is likely to end up paying – so cost
considerations are important. The auditor should involve experts only when no
other sufficient appropriate evidence is available.
Factors which may influence the auditor to rely
upon or not rely upon the work of a specialist include:
upon or not rely upon the work of a specialist include:
·
The
competence of the specialist – this may be indicated by technical
qualifications, certification and licensing or membership of professional
bodies. The expert also should have some level of reputation or standing in the
area of their expertise.
The
competence of the specialist – this may be indicated by technical
qualifications, certification and licensing or membership of professional
bodies. The expert also should have some level of reputation or standing in the
area of their expertise.
·
The
experience of the specialist – the expert should have the appropriate
experience to carry out the work. For example, if the matter involves a valuation
of commercial property it would not be appropriate to engage an expert whose
experienced was only that of valuing domestic property, however well-qualifiers’
technically that person was.
The
experience of the specialist – the expert should have the appropriate
experience to carry out the work. For example, if the matter involves a valuation
of commercial property it would not be appropriate to engage an expert whose
experienced was only that of valuing domestic property, however well-qualifiers’
technically that person was.
·
The
independence of the specialist – the degree of relationships with the client
may be the key factor. Any specialist – who is related to the directors or
employees of the client or who has financial interest (other than his fee) with
the client is clearly less than wholly independent. Apparent dependence may be
mitigated by professional body disciplinary and ethical codes.
The
independence of the specialist – the degree of relationships with the client
may be the key factor. Any specialist – who is related to the directors or
employees of the client or who has financial interest (other than his fee) with
the client is clearly less than wholly independent. Apparent dependence may be
mitigated by professional body disciplinary and ethical codes.
Process
If it is the intention of the auditor to place
reliance on the work of a specialist, it is important to hold a consultation
between auditor, client and specialist, at the time the specialist is
appointed, to reach agreement on the work to be performed. The agreement should
cover:
reliance on the work of a specialist, it is important to hold a consultation
between auditor, client and specialist, at the time the specialist is
appointed, to reach agreement on the work to be performed. The agreement should
cover:
·
Objectives,
scope and subject matter of the specialist’s work.
Objectives,
scope and subject matter of the specialist’s work.
·
Assumptions
upon which the specialist’s report depends and their compatibility with the
accounts. For example, are going concern or market values to be taken?
Assumptions
upon which the specialist’s report depends and their compatibility with the
accounts. For example, are going concern or market values to be taken?
·
A
statement of the bases used in previous years and any change to be made.
A
statement of the bases used in previous years and any change to be made.
·
The use
to be made of the specialist’s findings. (They may need this for professional
indemnity insurance purposes.)
The use
to be made of the specialist’s findings. (They may need this for professional
indemnity insurance purposes.)
·
The form
and content of the specialist’s report or opinion.
The form
and content of the specialist’s report or opinion.
·
The
sources of information to be provided to the specialist.
The
sources of information to be provided to the specialist.
·
The
identification of any relationship which may affect the specialist’s
objectivity. An example of this may be the case of an architect who, though in
private practice, obtains most of his commissions from the client who is
subject to audit.
The
identification of any relationship which may affect the specialist’s
objectivity. An example of this may be the case of an architect who, though in
private practice, obtains most of his commissions from the client who is
subject to audit.
It is possible to use a specialist’s opinion
without this process but it is desirable to go through this procedures.
without this process but it is desirable to go through this procedures.
Evaluation of the specialist evidence
As we have seen the sufficiency and appropriateness
of such evidence will depend upon:
of such evidence will depend upon:
·
The
nature of the evidence required;
The
nature of the evidence required;
·
The
materiality of the items being evidenced;
The
materiality of the items being evidenced;
·
The
auditor’s assessment of the competence of the specialist;
The
auditor’s assessment of the competence of the specialist;
·
Their
independence from the client.
Their
independence from the client.
The auditors have to review the findings of the
experts and draw their own conclusions. In particular they will look at:
experts and draw their own conclusions. In particular they will look at:
·
The
source data used i.e. what has the expert based their opinion on?
The
source data used i.e. what has the expert based their opinion on?
·
The
assumptions and methods used – and their consistency with previous period.
The
assumptions and methods used – and their consistency with previous period.
·
When the
expert’s work was carried out – i.e. were valuations carried out at the year
end or some other date and does it matter?
When the
expert’s work was carried out – i.e. were valuations carried out at the year
end or some other date and does it matter?
·
An
overall evaluation of the expert’s work in the light of the auditors’ overall
knowledge of the business and the industry and the results of other audit
procedures, which may go some way towards corroborating the expert’s opinion.
An
overall evaluation of the expert’s work in the light of the auditors’ overall
knowledge of the business and the industry and the results of other audit
procedures, which may go some way towards corroborating the expert’s opinion.
The
auditors may well want to:
auditors may well want to:
·
Review
the sources themselves to ascertain whether or not they are reliable;
Review
the sources themselves to ascertain whether or not they are reliable;
·
Review
the specialists procedures; and
Review
the specialists procedures; and
·
Review
and data used by the expert for themselves
Review
and data used by the expert for themselves
In order to satisfy them that the work the expert
has done can be relied on.
has done can be relied on.
Clearly the auditor does not have the same level of
experience as an expert and the expert’s opinion can be difficult to challenge.
experience as an expert and the expert’s opinion can be difficult to challenge.
The key point is this:
·
The
expert’s opinion is their responsibility – they have to carry out the work they
do to the best of their ability;
The
expert’s opinion is their responsibility – they have to carry out the work they
do to the best of their ability;
·
Whether
that work provides sufficient appropriate evidence for the auditor is the
auditors’ responsibility – and that is what they alone can decide.
Whether
that work provides sufficient appropriate evidence for the auditor is the
auditors’ responsibility – and that is what they alone can decide.
If the auditors are not happy with the expert’s
work they have some options:
work they have some options:
·
Try again
with another expert – cost considerations are important and there is no
guarantee the outcome will be any different.
Try again
with another expert – cost considerations are important and there is no
guarantee the outcome will be any different.
·
Discuss
the situation with the client and the expert together to see if difficulties
can be resolved.
Discuss
the situation with the client and the expert together to see if difficulties
can be resolved.
·
Apply
additional audit procedures.
Apply
additional audit procedures.
·
As a last
resort it may be necessary to modify (qualify) the auditor’s report on the
grounds of lack of evidence.
As a last
resort it may be necessary to modify (qualify) the auditor’s report on the
grounds of lack of evidence.
