This blog is written by Mr. Maaz Khan, Associate Audit and Assurance Services. Please read this blog and provide your valued comments.
Using the Work of an Auditor’s Expert (ISA 620)
The term ‘expert’ is used here in the sense of an individual or an organization that possesses skills, knowledge and experience in fields other than accounting or auditing. The auditor may use the work of an expert to provide knowledge relevant to the audit, which the audit firm itself does not possess. ISA 620 Using the work of an auditor’s expert gives a number of examples where experts may be used by an auditor. These include:
- legal opinions
- specialist valuation areas, such as property or pension liabilities
- the analysis of complex or unusual tax compliance issues.
Note that the ISA covers the work of the auditor’s expert – the expert is employed by the auditor, not by the entity. The situation where management use the work of an expert is covered by ISA 500. The objective of ISA 620 is to allow the auditor to decide whether to use the work of an expert, and assess whether that work is adequate.
Assessing the need for an expert
There is a cost attached to the use of an expert by the auditors. The expert will charge a fee for the professional service he provides. The use of an expert should therefore be evaluated on a cost/benefit basis. When deciding whether he needs to use an expert to assist him in obtaining sufficient appropriate evidence, the auditor should consider such factors as:
- the nature, significance and complexity of the matter
- the risk of material misstatement
- the availability of alternative sources of audit evidence
Assessing the work of an expert
ISA 620 requires the auditor to apply the procedures set out below when using the work of an expert. The auditor should:
- assess the competence, capabilities and objectivity of the expert in one or more of the following ways: –
- Personal experience with previous work of that expert.
- Discussions with that expert.
- Discussions with other auditors or others who are familiar with that expert’s work.
- obtain an understanding of the expert’s field of expertise, sufficient to allow the auditor to determine the nature, scope and objectives of the expert’s work and evaluate the adequacy of that work
- agree terms of engagement with the expert, including:
- the nature, scope and objectives of the expert’s work
- the respective responsibilities of the expert and the auditor
- the form of the expert’s report · confidentiality requirements
- evaluate the adequacy of the expert’s work, including the:
- reasonableness of the expert’s conclusions
- consistency of those conclusions with other audit evidence
- reasonableness of significant assumptions and methods used
- relevance, completeness and accuracy of source data.
If the auditor decides that the work of the expert is not adequate, he is required to agree additional work with the expert or perform other appropriate additional audit procedures. The auditor has sole responsibility for the audit opinion issued and this is not reduced in any way by his use of an expert. Therefore he should not refer in his report to the use of an expert, unless that is required by law or regulation. Even then, or if the auditor refers to the expert’s work in his report because it is relevant to an understanding of a modified opinion, then he must make it clear that such a reference does not reduce his responsibility for that opinion in any way. This approach reinforces the point made earlier, that the auditor remains fully responsible for the report produced, even if evidence on which it is based was produced by others. The auditor therefore cannot simply accept work performed by experts. That work must be evaluated in the same way as any other audit evidence is evaluated.