SESSION 18 USING THE WORK OF AN EXPERT

OVERVIEW
Objective

To describe the extent to which auditors are able to rely on the work of experts.

EXPERT

DETERMINING
NEED

Audit evidence
provided
Factors to
consider

CONSIDERING
WORK OF
INTERNAL AUDIT

Meaning
Engaging
Auditors responsibility

COMPETENCE &
OBJECTIVITY

Session 34

Competence
considerations
Objectivity impairments
Reservations

Written terms

ASSESSING
FINDINGS

Considerations
Source data
Corroboration

REPORTING

Insufficient/inconsistent evidence
Reference to experts
Modified opinions

SCOPE OF WORK

1801

SESSION 18 USING THE WORK OF AN EXPERT

EXPERTS [ISA 620]

1.1

Meaning

A person/firm possessing special skill, knowledge and experience in a field other than
accounting and auditing.

1.2

Engaging
Will usually be engaged or employed by the entity. In some circumstances, the expert
may need to be engaged by the auditor to carry out specific work. If employed by the
auditor (i.e. a member of the audit firm or associate firm) a self-review threat will arise
if their work (e.g. an asset valuation) will need to be audited. In most circumstances the
use of an expert for this type of work would not be permitted (see Session 4).

1.3

Auditors responsibility

Whilst auditors have sole responsibility for their opinion, they may, none-the-less, use
the work of an expert in arriving at their opinion.

If using the work of an expert, the auditor must ensure that such work is adequate for
audit purposes, i.e. that it provides sufficient and appropriate audit evidence for the
auditors purpose.

DETERMINING NEED

2.1

Audit evidence provided

2.1.1

Form

Acceptable in most forms, eg:

Reports
Opinions
Valuations
Statements

Cannot be given in verbal form, e.g. over the telephone, as must be documented from
the expert to be filed as audit evidence.

2.1.2

Examples

Asset valuations (e.g. land and buildings, plant and equipment, works of art, precious
stones, intangible assets).

Quantities/physical condition of assets (e.g. mineral reserves, stockpiles, work on

contracts in progress).

Liability valuations (e.g. pension liability valuation by actuary).

1802

SESSION 18 USING THE WORK OF AN EXPERT

Example 1
During the course of an audit it is sometimes necessary for the auditor to
consider audit evidence obtained from the companys legal advisers.

Required:
Suggest circumstances in which this may be necessary.

Solution

2.2

Factors to consider
Includes, for example:

importance of item in the financial statements (e.g. a material balance);

risk of misstatement (highly subjective and open to aggressive interpretation by

management);

other available evidence.

An expert is expensive if sufficient appropriate evidence is available from other reliable

sources.

COMPETENCE AND OBJECTIVITY

The competence and objectivity of an expert should be assessed if planning to use his work.

3.1

Basically, treat the expert as if they were a member of the audit team, e.g. competence,
objectivity, independence, briefing, supervision and review.

Competence considerations

Professional/technical certification/licensing/membership (e.g. search membership

records of professional body via internet).

Experience and reputation (e.g. visit company website, Google, local Chamber of Commerce).

Resources available to the expert.

1803

SESSION 18 USING THE WORK OF AN EXPERT

3.2

Objectivity impairment
The risk of objectivity being impaired increases if the expert is:

employed by entity; or
related to entity or management (e.g. financially dependent upon, having an
investment in or a family/personal relationship).

However, these facts alone do not prevent the auditor from placing reliance on the work
of an internal expert (e.g. employed surveyor to value building work-in-progress) they
just place the auditor on guard.

3.3

Reservations

Any reservations should be discussed with management and documented.

Additional audit procedures may be undertaken (i.e. evidence is not sufficient) or the
evidence of another expert sought.

If unable to obtain sufficient appropriate audit evidence the implications for the
auditors report of the limitation on scope should be considered in accordance with ISA
701 (see Session 30).

SCOPE OF WORK

The auditor should obtain sufficient appropriate audit evidence that the scope of the experts
work is adequate for audit purposes.

4.1

Written terms of reference

As with any member of the audit team, the expert must be briefed. This may be
undertaken by the auditor (e.g. for year end valuation of specialist inventory
industrial diamonds) or by the client (e.g. mid-year valuation of land and buildings).

Instructions to the expert (always to be in writing and made available to the auditor)
should include:

Objectives and scope of work

Specific matters to be covered in report
Intended use (including possible communication to third parties) of work
Extent of experts access to appropriate records, files, etc
Clarification of experts relationship with entity
Confidentiality of entitys information
Assumptions and methods to be used (and their consistency with those used in
prior periods).

Wherever possible, the auditor should verify that the scope of the experts work is
appropriate by, for example, observing the expert carrying out their work, e.g.
attending a physical count (asserting existence) or a valuation of WIP on a building site
(existence, stage of completion for valuation).

1804

SESSION 18 USING THE WORK OF AN EXPERT

ASSESSING EXPERTS FINDINGS

5.1

Appropriateness

The appropriateness of the experts work should be assessed with regard to the financial
statement assertions being considered.

Considerations include:

5.2

Source data used;

Assumptions used and consistency with prior periods;
Auditors overall knowledge and findings;
Timing of work carried out.

Source data

Make inquiries to establish whether source data is sufficient, relevant and reliable.
Review or test the data used by expert to ensure it is appropriate.

Whilst the auditor is not the expert, they must be able to form a reasonable idea that the
source data and processes are appropriate.

5.3

Corroboration
Wherever possible the experts opinion should be corroborated and consistency with
the following considered, eg:

Correspondence (e.g. regarding legal disputes);

Client or auditor reasonableness calculations (e.g. for inventory valuations);
Minutes of board meetings.

REPORTING

6.1

Insufficient or inconsistent evidence

The auditor should resolve any matter of insufficiency or inconsistency of evidence arising
from the experts work.

The reasons for the insufficiency or inconsistency must be ascertained, e.g. did the
expert follow the full scope of the terms of reference? Was the scope insufficient?

If insufficient, the auditor must consider other means of obtaining the audit evidence
needed including the use of other experts.

If inconsistent, which evidence is reliable? Is doubt cast upon the evidence obtained by
the auditor from the entity or is there doubt about the competence of the expert? The
reasons for the inconsistency must be established and appropriate action taken (e.g.
further work carried out on the client systems). In extreme cases, doubt may be cast
over the integrity of management and thus other representations made by them.

1805

SESSION 18 USING THE WORK OF AN EXPERT

6.2

Reference to expert

When issuing an unmodified opinion the auditor should not refer to the work of an expert.

Referring to the use of an expert in an unmodified report might suggest qualification or

division of responsibility (neither of which is appropriate).

It is the auditors responsibility to provide their opinion based on the work carried out,
including that of the expert. The auditor takes responsibility for the experts work and
their findings.

If the auditors report is modified reference to the expert may be appropriate in explaining
the modification. If so, the auditor should obtain the experts permission if necessary to refer
to them by name. If they refuse, the auditor should seek legal advice.

6.3

Modified opinions

Limitation on scope, e.g. management unable/unwilling to obtain expert evidence when

required.

Disagreement, e.g. management refuses to accept and use relevant and reliable expert
evidence.

FOCUS
You should now be able to:

discuss the extent to which auditors are able to rely on the work of experts;

discuss why auditors rely on the work of others;

explain the extent to which reference to the work of others can be made in audit reports.

EXAMPLE SOLUTION
Solution 1 Reliance on legal experts

Legal interpretation of agreements, statutes, or regulations (e.g. to determine whether

the rights, title and interest in financial assets have been legally transferred).

Legal opinions on the outcomes of disputes and litigation.

1806