Experts
1 Introduction
Sometimes auditors will need to use the work of others.
For example:
Experts in a field other than accounting or auditing, such as:
Actuaries to evaluate the adequacy of pension scheme funds
Estate agents to value property
Lawyers to estimate a legal liability
Gemologists to value diamonds
Geologists to estimate mineral deposits
Internal audit can be used to perform audit work on parts of a business (see Chapter 17).
Component auditors might be responsible for auditing one of the group’s companies (see Chapter 21).
In none of these cases can the audit firm escape its responsibility for providing its own opinion about the financial statements. The auditor must still obtain sufficient appropriate audit evidence that any third party’s work does itself provide sufficient appropriate audit evidence: auditors cannot shift blame to an expert if a material misstatement appears in the published financial statements. Indeed, reliance on a third party should not normally be disclosed in the auditor's report as this suggests an attempt to ‘blame-shift’.
2 Classes of expert
An auditor’s expert: possesses expertise used to assist the auditor in obtaining sufficient appropriate audit evidence. Can be either an internal expert (a partner or member of staff) such as an actuary employed by the auditing firm, or an external expert who is subcontracted to perform the work. ISA 620 Using the Work of an Auditor's Expert applies.
Management’s expert: possess the expertise to assist management of the company to prepare the financial statements. Can also be internal or external. ISA 500 Audit Evidence applies.
The fact that a management’s expert has prepared figures does not stop the auditor using an auditor’s expert. For example, if management’s expert is an employee of the client there are obvious risks that the expert has been influenced by management. Even if management's expert is not employed by the client, their objectivity must be assessed as well as their competence and capabilities.
3 What the auditor has to do initially
The auditor must be satisfied that the expert:
Has appropriate qualifications.
Has the proper experience. Qualification does not necessarily mean that the expert has the specific expertise needed. A surveyor could be qualified, but specialise in domestic property and that would be no good for the valuation of commercial property.
Is independent of the client (otherwise the client could pressurise the third party).
Is professional.
You will appreciate that forming an opinion on the competence of an expert can be difficult and the auditor should make enquiries from others who have used the expert, discover whether they have used that expert before with satisfactory results and generally try to assess their professional reputation.
The work to be performed by the expert has to be clearly defined:
Its nature, scope and objectives
The respective responsibilities of the auditor and the third party have to be defined.
The nature, scope and timing of communications must be set out.
The expert should be required to observe confidentiality. For example, valuable information about a company’s worth can be found by looking at the value of its property portfolio. A pension deficit implies bad news for the company.
4 Evaluating the adequacy of the expert's work
The auditor cannot verify all the technical calculations or repeat all the work done by the expert (otherwise the auditor would have had no need for the expert). However, the auditor must examine the expert’s work with respect to:
Consistency with other evidence. For example, if a property valuer reported a decrease in the value of a client’s property portfolio, yet the newspapers were full of news about a property boom, the auditor should challenge the valuer’s results.
Significant assumptions made. For example about the rate of inflation or rate of returns that might be earned on pension funds.
Use and accuracy of source data. To value property the valuer must start with an up-to-date list of the properties the company owns. If the right properties are not listed, the valuation will certainly be incorrect.
When the work was carried out to assess if it is still current or out-of-date.