Scope and objectives
The scope of auditing standards that deals with the auditor’s responsibilities regarding the use of an individual or organization’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.
The SA 620 makes it clear that it does not deal with situations where the engagement team includes a member with expertise in a specialized area of accounting or auditing (which is dealt with in SA 220) or the auditor’s use of the work of 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 prepare the financial statements (a management’s expert), which is dealt with in SA 500.
The auditor is ultimately responsible 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 620, 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.
The SA 620 is effective for audits of financial statements for periods beginning on or after April 1, 2010.
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.
The SA 620 provides definitions for key terms, including “auditor’s expert,” “expertise,” and “management’s expert.” It explains that an auditor’s expert is 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. The SA 620 also lists examples of areas of expertise that may be relevant, such as the valuation of complex financial instruments, land and buildings, and intangible assets. The SA 620 emphasizes that distinguishing between expertise in accounting or auditing and expertise in another field will be straightforward in many cases, but in some cases, it will require professional judgment. The SA 620 also notes that it is necessary to apply judgment when evaluating the competence, capabilities, and objectivity of an auditor’s expert, whether the expert is an individual or an organization. Finally, the SA provides a definition of “management’s expert,” which is 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.
Determining the Need for an Auditor’s Expert
An auditor’s expert may be needed if expertise in a field other than accounting or auditing is necessary to obtain sufficient appropriate audit evidence. The auditor should determine whether to use an auditor’s expert in such situations.
SA 620 also provides examples of situations where an auditor’s expert may be needed. These situations include obtaining an understanding of the entity and its environment, assessing risks of material misstatement, designing and performing audit procedures, and evaluating the sufficiency and appropriateness of audit evidence.
The risks of material misstatement may increase when expertise in a field other than accounting is needed for management to prepare the financial statements. If management does not possess the necessary expertise, a management’s expert may be used in addressing those risks. Relevant controls, including controls that relate to the work of a management’s expert, if any, may also reduce the risks of material misstatement.
SA 620 also highlights that the engagement partner is required to ensure that the engagement team and any auditor’s experts who are not part of the engagement team collectively have the appropriate competence and capabilities to perform the audit engagement.
An auditor who is not an expert in a relevant field other than accounting or auditing may still be able to obtain a sufficient understanding of that field to perform the audit without an auditor’s expert. However, in some cases, the auditor may determine that it is necessary, or may choose, to use an auditor’s expert to assist in obtaining sufficient appropriate audit evidence. The decision to use an auditor’s expert may be influenced by factors such as the nature and significance of the matter, its complexity, and the risks of material misstatement.
Finally, it notes that SA 500 includes requirements and guidance regarding the effect of the competence, capabilities, and objectivity of management’s experts on the reliability of audit evidence.
Nature, Timing and Extent of Audit Procedures
The nature, timing, and extent of audit procedures related to the work of an auditor’s expert, which may vary depending on the circumstances. The text mentions various factors that may suggest the need for different or more extensive procedures. These include the nature of the matter to which the expert’s work relates, the risks of material misstatement in that matter, the significance of the expert’s work in the context of the audit, the auditor’s knowledge and experience with previous work performed by the expert, and whether the expert is subject to the auditor’s firm’s quality control policies and procedures.
SA 620 also distinguishes between internal and external experts. An internal expert is a partner or staff of the auditor’s firm and is subject to the firm’s quality control policies and procedures, while an external expert is not a member of the engagement team and is not subject to those policies and procedures. However, some laws or regulations may require that an external expert be treated as a member of the engagement team and be subject to relevant ethical and professional requirements.
The engagement team is entitled to rely on the firm’s system of quality control, but the extent of that reliance will vary depending on the circumstances. The text mentions various factors that may affect the nature, timing, and extent of the auditor’s procedures to evaluate the adequacy of the expert’s work, including the competence and capabilities of the expert, the expert’s objectivity, adherence to regulatory and legal requirements, and agreement with the auditor’s expert. Finally, the text emphasizes that reliance on the firm’s system of quality control does not reduce the auditor’s responsibility to meet the requirements of the relevant standards.
The Competence, Capabilities and Objectivity of the Auditor’s Expert
The evaluation of an auditor’s expert to determine whether they possess the necessary competence, capabilities, and objectivity for the auditor’s purposes. The auditor’s expert is someone who is engaged by the auditor to perform certain procedures or provide information that is used in the audit.
The responsibilities of an auditor when evaluating the competence, capabilities, and objectivity of an auditor’s expert who is engaged to assist with an audit.
The competence of an auditor’s expert refers to their expertise in the specific area of work for which they are engaged. The auditor needs to evaluate whether the auditor’s expert has the necessary knowledge, skills, and experience to perform the work adequately. Capability refers to the ability of the auditor’s expert to exercise that competence in the specific circumstances of the engagement, such as the location of the work and the availability of time and resources. Objectivity refers to the impartiality and absence of bias in the professional or business judgment of the auditor’s expert.
The auditor needs to gather information from various sources to evaluate the competence, capabilities, and objectivity of the auditor’s expert. These sources include personal experience, discussions with the auditor’s expert and other auditors, knowledge of the auditor’s expert’s qualifications and recognition, published papers or books written by the auditor’s expert, and the auditor’s firm’s quality control policies and procedures.
The evaluation of the auditor’s expert also needs to consider the technical performance standards or other professional or industry requirements that apply to the work. The auditor needs to evaluate whether the auditor’s expert’s competence is relevant to the matter for which they are engaged, including any areas of specialty within their field. The auditor’s expert should also have the competence to apply relevant accounting and auditing requirements and methods that are consistent with the applicable financial reporting framework.
SA 620 also discusses the potential threats to the objectivity of the auditor’s expert, such as self-interest, advocacy, familiarity, self-review, and intimidation. The auditor needs to evaluate the significance of these threats and consider whether safeguards are necessary to eliminate or reduce them. Safeguards can be created by external structures, such as legislation or regulation, or the auditor’s expert’s work environment, such as quality control policies and procedures. The evaluation of the significance of threats to objectivity may depend on the role of the auditor’s expert and the significance of the work in the context of the audit.
When the auditor engages an external expert, the auditor needs to evaluate the external expert’s objectivity by inquiring about any known interests or relationships that may affect the external expert’s objectivity. The auditor also needs to discuss any applicable safeguards with the external expert and evaluate whether the safeguards are adequate to reduce the threats to an acceptable level. The auditor may also obtain a written representation from the external expert about any interests or relationships with the entity being audited.
Obtaining an Understanding of the Field of Expertise of the Auditor’s Expert
The responsibilities of an auditor in relation to using an auditor’s expert in an audit engagement. An auditor’s expert is a person or entity who has expertise in a particular field that is used by the auditor to assist in obtaining sufficient appropriate audit evidence.
The auditor is required to obtain a sufficient understanding of the field of expertise of the auditor’s expert. This is important to ensure that the auditor has the necessary knowledge to evaluate the work of the expert and the relevance of their findings to the audit engagement.
SA 620 also provides guidance on how the auditor can obtain an understanding of the expert’s field of expertise. The auditor can do this by reviewing certain objectives or through discussions with the expert.
The certain aspects of the expert’s field that are relevant to the auditor’s understanding. These include the existence of any specialty areas within the expert’s field that are relevant to the audit, any applicable professional or legal requirements, the assumptions and methods used by the expert, and the nature of data or information used by the expert.
In addition to understanding the expert’s field, the auditor is required to determine the nature, scope, and objectives of the expert’s work for the auditor’s purposes. The auditor must also evaluate the adequacy of the expert’s work for the auditor’s purposes. This ensures that the expert’s work is appropriate and sufficient for the auditor to rely on when forming their audit opinion.
Agreement with the Auditor’s Expert
The International Standard on Auditing (ISA) 620, which deals with the use of auditors’ experts in an audit engagement. The section in question is discussing the importance of agreeing on certain matters with the auditor’s expert, and specifically, the need to agree in writing when appropriate.
The nature, scope, and objectives of the auditor’s expert’s work may vary depending on the circumstances, as may the respective roles and responsibilities of the auditor and the expert, and the nature, timing, and extent of communication between them. Therefore, it is required that these matters be agreed upon between the auditor and the expert, regardless of whether the expert is an external or internal expert.
The level of detail and formality of the agreement may depend on various factors, such as the sensitivity of the information the expert will have access to, the complexity of the matter at hand, or the extent and significance of the expert’s work in the context of the audit. In some cases, a detailed written agreement, such as an engagement letter, may be necessary.
The agreement should cover the nature, scope, and objectives of the expert’s work, the respective roles and responsibilities of the auditor and the expert, the nature, timing, and extent of communication between them, and the need for the expert to observe confidentiality requirements. It may also be relevant to include discussion of any relevant technical performance standards or other professional or industry requirements that the expert will follow.
Agreement on the respective roles and responsibilities of the auditor and the expert may include details such as whether the expert or the auditor will perform detailed testing of source data, whether the auditor can discuss the expert’s findings or conclusions with the entity or others, and any agreement to inform the expert of the auditor’s conclusions concerning their work.
Finally, the agreement may also cover access to and retention of each other’s working papers, and the need for the expert to observe confidentiality requirements, which should be in line with ethical and legal requirements. Effective two-way communication and identification of specific partners or staff who will liaise with the expert is essential to facilitate timely and effective communication, particularly on larger engagements.
Evaluating the Adequacy of the Auditor’s Expert’s Work
The excerpt is discussing the responsibility of auditors to evaluate the adequacy of work performed by an auditor’s expert, and the specific procedures they can use to do so.
According to the excerpt, the auditor must evaluate the adequacy of the expert’s work for their purposes, which involves assessing the expert’s competence, capabilities, and objectivity, as well as the nature of the work performed by the expert. The auditor should also consider the relevance and reasonableness of the expert’s findings or conclusions, and whether they are consistent with other audit evidence.
To evaluate the adequacy of the expert’s work, the auditor may use a range of procedures, such as making inquiries of the expert, reviewing the expert’s working papers and reports, observing the expert’s work, and performing analytical procedures or re-performing calculations. The auditor may also discuss the expert’s report with management or consult with another expert with relevant expertise.
If the expert’s work involves the use of significant assumptions and methods or source data that is significant to their work, the auditor should evaluate the relevance, completeness, and accuracy of those assumptions, methods, or data. To do so, the auditor may review the internal controls over the data, test the data’s completeness and internal consistency, or evaluate whether the assumptions and methods are generally accepted within the expert’s field or consistent with the applicable financial reporting framework.
If the auditor determines that the expert’s work is not adequate for their purposes, they may need to agree on the nature and extent of further work to be performed by the expert or perform further audit procedures appropriate to the circumstances. If the matter cannot be resolved through additional audit procedures or the engagement of another expert, the auditor may need to express a modified opinion in their report.
Reference to the Auditor’s Expert in the Auditor’s Report
The role of an auditor’s expert in an audit report. An auditor’s expert is a specialist who is engaged by the auditor to assist in the audit process by providing expert knowledge or skills in a particular field. For example, an auditor may engage an expert in the field of IT security to help them audit a client’s computer systems.
The auditor should refer to the work of an auditor’s expert in the audit report. The first paragraph states that if the audit report contains an unmodified opinion (i.e., the auditor has no material disagreements with the financial statements), then the auditor should not refer to the work of an auditor’s expert unless required to do so by law or regulation. If the auditor is required to refer to the expert’s work, the auditor must make it clear in the report that the reference does not reduce the auditor’s responsibility for the opinion given in the report.
The auditor has modified their opinion (i.e., the auditor has material disagreements with the financial statements). In this case, the auditor may need to refer to the work of an auditor’s expert to explain the nature of the modification. For example, if the auditor has a disagreement about the valuation of certain assets, they may need to refer to the work of an expert in asset valuation to explain their position. However, the auditor must make it clear in the report that the reference to the expert’s work does not reduce the auditor’s responsibility for the modified opinion given in the report.
The guidelines emphasize the importance of transparency and accuracy in the audit report. If the auditor is required to refer to the work of an auditor’s expert, they must make it clear in the report that the reference does not reduce their responsibility for the opinion given in the report. This is to ensure that the reader of the report understands that the auditor is still ultimately responsible for the opinion given, even if they have relied on the work of an expert.
Considerations for Agreement between the Auditor and an Auditor’s External Expert
The of considerations for an agreement between an auditor and an external expert engaged by the auditor. The list is meant to be a guide and is not exhaustive, and whether to include certain matters in the agreement will depend on the specific circumstances of the engagement.
The considerations are divided into three main categories:
- Nature, Scope and Objectives of the Auditor’s External Expert’s Work: This category includes matters related to the nature and scope of the external expert’s work, including the procedures to be performed, the objectives of the work, any applicable technical standards or professional requirements, the assumptions and methods to be used, and the effective date of the work.
- The Respective Roles and Responsibilities of the Auditor and the Auditor’s External Expert: This category includes matters related to the respective roles and responsibilities of the auditor and the external expert, such as relevant auditing and accounting standards, the external expert’s consent to the auditor’s intended use of their report, the nature and extent of the auditor’s review of the external expert’s work, and procedures for communication between the auditor and the external expert.
- Communications and Reporting: This category includes matters related to communications and reporting, such as the methods and frequency of communications, the timeline for completing the work and reporting findings, and the external expert’s responsibility to communicate promptly any potential delays, reservations, or limitations on their findings or conclusions.
Finally, SA 620 notes that confidentiality is also an important consideration, and the agreement should address any relevant confidentiality requirements, including those imposed by ethical requirements, law, or regulation, as well as any specific confidentiality provisions requested by the entity.
Quiz: Using the Work of an Auditor’s Expert
1. Which auditing standard provides guidance on the use of an auditor’s expert?
a) SA 500
b) SA 620
c) SA 220
d) SA 510
Answer: b)
2. SA 620 deals with the use of an auditor’s expert in a field of expertise:
a) Related to accounting or auditing
b) Different from accounting or auditing
c) Both accounting and auditing
d) None of the above
Answer: b)
3. The auditor’s responsibility for the audit opinion expressed is:
a) Reduced when using an auditor’s expert
b) Not affected by the use of an auditor’s expert
c) Eliminated when using an auditor’s expert
d) Transferred to the auditor’s expert
Answer: b)
4. The objectives of the auditor in using an auditor’s expert include:
a) Evaluating the competence of the expert
b) Determining the nature of the expert’s work
c) Assessing the sufficiency of audit evidence
d) All of the above
Answer: d)
5. An auditor’s expert may be needed in situations where:
a) Expertise in accounting or auditing is required
b) The auditor lacks knowledge in a specific area
c) The entity needs assistance in preparing financial statements
d) Both b) and c)
Answer: d)
6. The nature, timing, and extent of audit procedures related to an auditor’s expert may depend on:
a) The auditor’s experience with the expert’s work
b) The complexity of the matter being audited
c) The availability of time and resources
d) All of the above
Answer: d)
7. When evaluating the adequacy of an auditor’s expert’s work, the auditor may perform the following procedures except:
a) Reviewing the expert’s working papers
b) Discussing the expert’s report with management
c) Observing the expert’s work
d) Performing internal control testing
Answer: d)
8. Which of the following is not a potential threat to the objectivity of an auditor’s expert?
a) Self-interest
b) Familiarity
c) Competence
d) Advocacy
Answer: c)
9. In an audit report, when should the auditor refer to the work of an auditor’s expert?
a) Only when the expert disagrees with the auditor’s opinion
b) Only when required by law or regulation
c) Only when the auditor has modified their opinion
d) Only when the expert’s work is crucial for the audit
Answer: b)
10. What are the main categories of considerations for an agreement between an auditor and an external expert engaged by the auditor?
a) Nature, Scope, and Objectives of the Auditor’s External Expert’s Work; Communications and Reporting; and Confidentiality
b) Auditor’s Responsibilities, Expert’s Qualifications, and Expert’s Reporting
c) Procedures, Review Process, and Timelines
d) Expert’s Consent, Auditor’s Communication, and External Standard
Answer: a)
Additional questions:
11. An auditor’s expert is defined as an individual or organization possessing expertise in a field other than:
a) Auditing
b) Accounting
c) Financial management
d) Taxation
Answer: b)
12. The SA 620 provides examples of areas of expertise that may be relevant for an auditor’s expert. Which of the following is NOT mentioned as an example?
a) Valuation of complex financial instruments
b) Land and buildings valuation
c) Tax compliance
d) Intangible assets valuation
Answer: c)
13. SA 620 requires the auditor to evaluate the competence, capabilities, and objectivity of an auditor’s expert.
a) True
b) False
Answer: a)
14. When determining the need for an auditor’s expert, the auditor should consider which of the following?
a) Complexity of the matter
b) Availability of in-house expertise
c) Risks of material misstatement
d) All of the above
Answer: d)
15. The nature, timing, and extent of audit procedures related to the work of an auditor’s expert may be influenced by:
a) Expert’s professional qualifications
b) Previous work performed by the expert
c) Availability of industry benchmarks
d) All of the above
Answer: d)
16. Which type of expert is subject to the auditor’s firm’s quality control policies and procedures?
a) Internal expert
b) External expert
c) Both internal and external experts
d) None of the above
Answer: a)
17. The auditor’s evaluation of an auditor’s expert’s work should include considerations of the:
a) Objectivity of the expert
b) Relevance of the expert’s findings
c) Adequacy of the expert’s work
d) All of the above
Answer: d)
18. The agreement with an auditor’s expert should cover which of the following aspects?
a) Nature, scope, and objectives of the expert’s work
b) Roles and responsibilities of the auditor and the expert
c) Communication between the auditor and the expert
d) All of the above
Answer: d)
19. True or False: In an audit report, the auditor is required to refer to the work of an auditor’s expert if the report contains an unmodified opinion.
a) True
b) False
Answer: b)
20. Which category of considerations in the agreement between the auditor and an external expert addresses matters related to auditing and accounting standards, review of the expert’s work, and communication between the auditor and the expert?
a) Nature, Scope, and Objectives of the Auditor’s External Expert’s Work
b) The Respective Roles and Responsibilities of the Auditor and the Auditor’s External Expert
c) Communications and Reporting
d) Confidentiality
Answer: b)
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Statement on Auditing Standards – SA 505
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Statement on Auditing Standards – SA 701
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Statement on Auditing Standards – SAE 3400
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Statement on Auditing Standards – SRE 2410
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Statement on Auditing Standards – SRS 4410
