Obtaining a Copy of this Auditing Standard

This Auditing Standard is available on the AUASB website: www.auasb.gov.au.

Alternatively, printed copies of this Auditing Standard are available by contacting:

COPYRIGHT

© Commonwealth of Australia 2006. The text, graphics and layout of this Auditing Standard are protected by Australian copyright law and the comparable law of other countries. Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source. Requests and enquiries concerning reproduction and rights for commercial purposes within Australia should be addressed to the Principal Executive, Auditing and Assurance Standards Board, PO Box 204, Collins Street West, Melbourne Victoria 8007. Otherwise, no part of the Auditing Standard may be reproduced, stored or transmitted in any form or by any means without the prior written permission of the AUASB except as permitted by law.

ISSN 1833-4393

CONTENTS

PREFACE

AUTHORITY STATEMENT

Paragraphs

Application.................................. 1-2

Operative Date................................ 3

Introduction.................................. 4-9

Determining the Need to Use the Work of an Expert....... 10-11

Competence and Objectivity of the Expert.............. 12-16

Scope of the Expert’s Work....................... 17-18

Evaluating the Work of the Expert................... 19-24

Reference to an Expert in the Auditor’s Report........... 25-27

Conformity with International Standards on Auditing...... 28

Obtaining a Copy of this Auditing Standard

This Auditing Standard is available on the AUASB website: www.auasb.gov.au.

Alternatively, printed copies of this Auditing Standard are available by contacting:

COPYRIGHT

© Commonwealth of Australia 2006. The text, graphics and layout of this Auditing Standard are protected by Australian copyright law and the comparable law of other countries. Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source. Requests and enquiries concerning reproduction and rights for commercial purposes within Australia should be addressed to the Principal Executive, Auditing and Assurance Standards Board, PO Box 204, Collins Street West, Melbourne Victoria 8007. Otherwise, no part of the Auditing Standard may be reproduced, stored or transmitted in any form or by any means without the prior written permission of the AUASB except as permitted by law.

ISSN 1833-4393

CONTENTS

PREFACE

AUTHORITY STATEMENT

Paragraphs

Application.................................. 1-2

Operative Date................................ 3

Introduction.................................. 4-9

Determining the Need to Use the Work of an Expert....... 10-11

Competence and Objectivity of the Expert.............. 12-16

Scope of the Expert’s Work....................... 17-18

Evaluating the Work of the Expert................... 19-24

Reference to an Expert in the Auditor’s Report........... 25-27

Conformity with International Standards on Auditing...... 28

Preface

Reasons for Issuing Auditing Standard ASA 620 Using the Work of an Expert

The Auditing and Assurance Standards Board (AUASB) issues Auditing Standard ASA 620 Using the Work of an Expert due to the requirements of the legislative provisions explained below.

The Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (the CLERP 9 Act) established the AUASB as an independent statutory body under section 227A of the Australian Securities and Investments Commission Act 2001, as from 1 July 2004. Under section 336 of the Corporations Act 2001, the AUASB may make Auditing Standards for the purposes of the corporations legislation. These Auditing Standards are legislative instruments under the Legislative Instruments Act 2003.

Main Features

This Auditing Standard establishes mandatory requirements and provides explanatory guidance on using the work of an expert as audit evidence.

Operative Date

This Auditing Standard is operative for financial reporting periods commencing on or after 1 July 2006.

Main changes from AUS 606 (July 2002) Using the Work of an Expert

The main differences between this Auditing Standard and the Auditing Standard issued by the Auditing & Assurance Standards Board of the Australian Accounting Research Foundation, AUS 606 (July 2002) Using the Work of an Expert, are that in this Auditing Standard:

1. The word ‘shall’, in the bold-type paragraphs, is the terminology used to describe an auditor’s mandatory requirements, whereas an auditor’s degree of responsibility is described in AUS 606 by the word ‘should’.
2. The explanatory guidance paragraphs provide guidance and illustrative examples to assist the auditor in fulfilling the mandatory requirements, whereas in AUS 606 some obligations are implied within certain explanatory paragraphs. Accordingly, such paragraphs have been redrafted to clarify that the matter forms part of explanatory guidance.
3. Includes as an expert a person employed by the auditor, whereas in AUS 606, a person employed by the auditor is not considered an expert.

AUTHORITY STATEMENT

The Auditing and Assurance Standards Board (AUASB) makes Auditing Standard ASA 620 Using the Work of an Expert as set out in paragraphs 1 to 28, pursuant to section 227B of the Australian Securities and Investments Commission Act 2001 and section 336 of the Corporations Act 2001.

This Auditing Standard is to be read in conjunction with the Preamble to AUASB Standards, which sets out the intentions of the AUASB on how the Auditing Standards are to be understood, interpreted and applied.

The mandatory requirements of this Auditing Standard are set out in bold-type paragraphs.

Dated 28 April 2006 M H Kelsall
Chairman - AUASB

Reasons for Issuing Auditing Standard ASA 620 Using the Work of an Expert

The Auditing and Assurance Standards Board (AUASB) issues Auditing Standard ASA 620 Using the Work of an Expert due to the requirements of the legislative provisions explained below.

The Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (the CLERP 9 Act) established the AUASB as an independent statutory body under section 227A of the Australian Securities and Investments Commission Act 2001, as from 1 July 2004. Under section 336 of the Corporations Act 2001, the AUASB may make Auditing Standards for the purposes of the corporations legislation. These Auditing Standards are legislative instruments under the Legislative Instruments Act 2003.

Main Features

This Auditing Standard establishes mandatory requirements and provides explanatory guidance on using the work of an expert as audit evidence.

Operative Date

This Auditing Standard is operative for financial reporting periods commencing on or after 1 July 2006.

Main changes from AUS 606 (July 2002) Using the Work of an Expert

The main differences between this Auditing Standard and the Auditing Standard issued by the Auditing & Assurance Standards Board of the Australian Accounting Research Foundation, AUS 606 (July 2002) Using the Work of an Expert, are that in this Auditing Standard:

1. The word ‘shall’, in the bold-type paragraphs, is the terminology used to describe an auditor’s mandatory requirements, whereas an auditor’s degree of responsibility is described in AUS 606 by the word ‘should’.
2. The explanatory guidance paragraphs provide guidance and illustrative examples to assist the auditor in fulfilling the mandatory requirements, whereas in AUS 606 some obligations are implied within certain explanatory paragraphs. Accordingly, such paragraphs have been redrafted to clarify that the matter forms part of explanatory guidance.
3. Includes as an expert a person employed by the auditor, whereas in AUS 606, a person employed by the auditor is not considered an expert.

AUTHORITY STATEMENT

The Auditing and Assurance Standards Board (AUASB) makes Auditing Standard ASA 620 Using the Work of an Expert as set out in paragraphs 1 to 28, pursuant to section 227B of the Australian Securities and Investments Commission Act 2001 and section 336 of the Corporations Act 2001.

This Auditing Standard is to be read in conjunction with the Preamble to AUASB Standards, which sets out the intentions of the AUASB on how the Auditing Standards are to be understood, interpreted and applied.

The mandatory requirements of this Auditing Standard are set out in bold-type paragraphs.

Dated 28 April 2006 M H Kelsall
Chairman - AUASB

AUTHORITY STATEMENT

The Auditing and Assurance Standards Board (AUASB) makes Auditing Standard ASA 620 Using the Work of an Expert as set out in paragraphs 1 to 28, pursuant to section 227B of the Australian Securities and Investments Commission Act 2001 and section 336 of the Corporations Act 2001.

This Auditing Standard is to be read in conjunction with the Preamble to AUASB Standards, which sets out the intentions of the AUASB on how the Auditing Standards are to be understood, interpreted and applied.

The mandatory requirements of this Auditing Standard are set out in bold-type paragraphs.

AUDITING STANDARD ASA 620

Using the Work of an Expert

Application

1 This Auditing Standard applies to:

(a) an audit of a financial report for a financial year, or an audit of a financial report for a half-year, in accordance with Part 2M.3 of the Corporations Act 2001; and

(b) an audit of a financial report for any other purpose.

2 This Auditing Standard also applies, as appropriate, to an audit of other financial information.

Operative Date

3 This Auditing Standard is operative for financial reporting periods commencing on or after 1 July 2006.

Introduction

4 The purpose of this Auditing Standard is to establish mandatory requirements and provide explanatory guidance on using the work of an expert as audit evidence.

5 When using the work performed by an expert, the auditor shall obtain sufficient appropriate audit evidence that such work is adequate for the purposes of the audit.

6 “Expert” means a person or firm possessing special skill, knowledge and experience in a particular field other than accounting and auditing.

7 The auditor’s education and experience enable the auditor to be knowledgeable about business matters in general, but the auditor is not expected to have the expertise of a person trained for or qualified to engage in the practice of another profession or occupation, such as an actuary or engineer.

8 An expert may be:

(a) contracted by the entity;

(b) contracted by the auditor;

(c) employed by the entity; or

(d) employed by the auditor.

When the auditor uses the work of an expert employed by the audit firm, the auditor will be able to rely on the firm’s systems for recruitment and training that determine that expert’s capabilities and competence, as explained in ASA 220 Quality Control for Audits of Historical Financial Information, instead of needing to evaluate them for each audit engagement.

9 Although the auditor may use the work of an expert as audit evidence, under ASA 700 The Auditor’s Report on a General Purpose Financial Report, the auditor retains full responsibility for the audit opinion on the financial report.

Determining the Need to Use the Work of an Expert

10 In obtaining an understanding of the entity and performing further procedures in response to assessed risks, the auditor may need to obtain, in conjunction with the entity or independently, audit evidence in the form of reports, opinions, valuations and statements of an expert. Examples include the following:

• valuations of certain types of assets, for example land and buildings, plant and machinery, works of art and precious stones;
• determination of quantities or physical condition of assets, for example minerals stored in stockpiles, underground mineral and petroleum reserves and the remaining useful life of plant and machinery;
• determination of amounts using specialised techniques or methods, for example an actuarial valuation;
• the measurement of work completed and to be completed on contracts in progress; and
• legal opinions concerning interpretations of agreements, statutes and regulations.

11 When determining the need to use the work of an expert, the auditor would ordinarily consider:

(a) the engagement team’s knowledge and previous experience of the matter being considered;

(b) the risk of material misstatement based on the nature, complexity, and materiality of the matter being considered; and

(c) the quantity and quality of other audit evidence expected to be obtained.

Competence and Objectivity of the Expert

12 When planning to use the work of an expert, the auditor shall evaluate the professional competence of the expert.

13 The auditor would ordinarily consider the expert’s:

(a) professional certification or licensing by, or membership in, an appropriate professional body; and

(b) experience and reputation in the field in which the auditor is seeking audit evidence.

14 The auditor shall evaluate the objectivity of the expert.

15 The risk that an expert’s objectivity will be impaired increases when the expert is:

(a) employed by the entity; or

(b) related in some other manner to the entity, for example by being financially dependent upon or having an investment in the entity.

If the auditor is concerned regarding the competence or objectivity of the expert, the auditor would ordinarily discuss any reservations with management and consider whether sufficient appropriate audit evidence can be obtained concerning the work of an expert. The auditor may need to undertake additional audit procedures or seek audit evidence from another expert (after taking into account the factors in paragraph 11 of this Auditing Standard).

16 Where an expert is employed by or related to the entity, the auditor would ordinarily consider whether there are any mitigating factors such as professional and/or statutory obligations governing the work of an expert, that would impact on the objectivity of the expert. For example it is common practice for the actuary of a life insurance company to be an employee.

Scope of the Expert’s Work

17 The auditor shall obtain sufficient appropriate audit evidence that the scope of the expert’s work is adequate for the purposes of the audit.

18 Audit evidence may be obtained through a review of the terms of reference which are often set out in written instructions from the entity to the expert. Such instructions to the expert may cover such matters as the following:

• the objectives and scope of the expert’s work;

• a general outline as to the specific matters the auditor expects the expert’s report to cover;

• the intended use by the auditor of the expert’s work, including the possible communication to third parties of the expert’s identity and extent of involvement;

• the extent of the expert’s access to appropriate records and files;

• clarification of the expert’s relationship with the entity, if any;

• confidentiality of the entity’s information; and

• information regarding the assumptions and methods intended to be used by the expert and their consistency with those used in prior periods.

  In the event that these matters are not clearly set out in written instructions to the expert, the auditor may need to communicate with the expert directly to obtain audit evidence in this regard. In obtaining an understanding of the entity, the auditor also ordinarily considers whether to include the expert during the engagement team’s discussion of the susceptibility of the entity’s financial report to material misstatement.

Evaluating the Work of the Expert

19 The auditor shall evaluate the appropriateness of the expert’s work as audit evidence regarding the assertion being considered.

20 The auditor would ordinarily evaluate whether the substance of the expert’s findings is properly reflected in the financial report or supports the assertions, and consideration of:

• source data used;
• assumptions and methods used and their consistency with prior periods; and
• results of the expert’s work in the light of the auditor’s overall knowledge of the business and the results of other audit procedures.

21 When considering whether the expert has used source data which is appropriate in the circumstances, the auditor would ordinarily consider the following procedures:

(a) making enquiries regarding any procedures undertaken by the expert to establish whether the source data is relevant and reliable; and

(b) reviewing or testing the data used by the expert.

22 The appropriateness and reasonableness of assumptions and methods used and their application are the responsibility of the expert. The auditor does not have the same expertise and, therefore, cannot always challenge the expert’s assumptions and methods. However, the auditor will ordinarily need to obtain an understanding of the assumptions and methods used and to consider whether they are appropriate and reasonable, based on the auditor’s knowledge of the business and the results of other audit procedures.

23 If the results of the expert’s work do not provide sufficient appropriate audit evidence, or if the results are not consistent with other audit evidence, the auditor shall resolve the matter.

24 This may involve discussions with the entity and the expert, applying additional audit procedures, including possibly engaging another expert, or modifying the auditor’s report.

Reference to an Expert in the Auditor’s Report

25 When issuing an unmodified auditor’s report, the auditor shall not refer to the work of an expert.

26 Such a reference might be misunderstood to be a modification of the auditor’s opinion or a division of responsibility, neither of which is intended.

27 If, as a result of the work of an expert, the auditor decides to issue a modified auditor’s report, in some circumstances it may be appropriate in explaining the nature of the modification, to refer to or describe the work of the expert (including the identity of the expert and the extent of the expert’s involvement). In these circumstances, the auditor would ordinarily obtain the permission of the expert before making such a reference. If permission is refused and the auditor believes a reference is necessary, the auditor may need to seek legal advice.

Conformity with International Standards on Auditing

28 Except as noted below, this Auditing Standard conforms with International Standard on Auditing ISA 620 Using the Work of an Expert, issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants. The main difference between this Auditing Standard and ISA 620 is:

• This Auditing Standard includes the following explanatory guidance paragraphs that are not included in ISA 620:

♦ Although the auditor may use the work of an expert as audit evidence, under ASA 700 The Auditor’s Report on a General Purpose Financial Report, the auditor retains full responsibility for the audit opinion on the financial report (paragraph 9).

♦ Where an expert is employed by or related to the entity, the auditor would ordinarily consider whether there are any mitigating factors such as professional and/or statutory obligations governing the work of an expert, that would impact on the objectivity of the expert. For example it is common practice for the actuary of a life insurance company to be an employee (paragraph 16).

Compliance with this Auditing Standard enables compliance with ISA 620.

AUDITING STANDARD ASA 620

Using the Work of an Expert

Application

1 This Auditing Standard applies to:

(a) an audit of a financial report for a financial year, or an audit of a financial report for a half-year, in accordance with Part 2M.3 of the Corporations Act 2001; and

(b) an audit of a financial report for any other purpose.

2 This Auditing Standard also applies, as appropriate, to an audit of other financial information.

Operative Date

3 This Auditing Standard is operative for financial reporting periods commencing on or after 1 July 2006.

Introduction

4 The purpose of this Auditing Standard is to establish mandatory requirements and provide explanatory guidance on using the work of an expert as audit evidence.

5 When using the work performed by an expert, the auditor shall obtain sufficient appropriate audit evidence that such work is adequate for the purposes of the audit.

6 “Expert” means a person or firm possessing special skill, knowledge and experience in a particular field other than accounting and auditing.

7 The auditor’s education and experience enable the auditor to be knowledgeable about business matters in general, but the auditor is not expected to have the expertise of a person trained for or qualified to engage in the practice of another profession or occupation, such as an actuary or engineer.

8 An expert may be:

(a) contracted by the entity;

(b) contracted by the auditor;

(c) employed by the entity; or

(d) employed by the auditor.

When the auditor uses the work of an expert employed by the audit firm, the auditor will be able to rely on the firm’s systems for recruitment and training that determine that expert’s capabilities and competence, as explained in ASA 220 Quality Control for Audits of Historical Financial Information, instead of needing to evaluate them for each audit engagement.

9 Although the auditor may use the work of an expert as audit evidence, under ASA 700 The Auditor’s Report on a General Purpose Financial Report, the auditor retains full responsibility for the audit opinion on the financial report.

Determining the Need to Use the Work of an Expert

10 In obtaining an understanding of the entity and performing further procedures in response to assessed risks, the auditor may need to obtain, in conjunction with the entity or independently, audit evidence in the form of reports, opinions, valuations and statements of an expert. Examples include the following:

• valuations of certain types of assets, for example land and buildings, plant and machinery, works of art and precious stones;
• determination of quantities or physical condition of assets, for example minerals stored in stockpiles, underground mineral and petroleum reserves and the remaining useful life of plant and machinery;
• determination of amounts using specialised techniques or methods, for example an actuarial valuation;
• the measurement of work completed and to be completed on contracts in progress; and
• legal opinions concerning interpretations of agreements, statutes and regulations.

11 When determining the need to use the work of an expert, the auditor would ordinarily consider:

(a) the engagement team’s knowledge and previous experience of the matter being considered;

(b) the risk of material misstatement based on the nature, complexity, and materiality of the matter being considered; and

(c) the quantity and quality of other audit evidence expected to be obtained.

Competence and Objectivity of the Expert

12 When planning to use the work of an expert, the auditor shall evaluate the professional competence of the expert.

13 The auditor would ordinarily consider the expert’s:

(a) professional certification or licensing by, or membership in, an appropriate professional body; and

(b) experience and reputation in the field in which the auditor is seeking audit evidence.

14 The auditor shall evaluate the objectivity of the expert.

15 The risk that an expert’s objectivity will be impaired increases when the expert is:

(a) employed by the entity; or

(b) related in some other manner to the entity, for example by being financially dependent upon or having an investment in the entity.

If the auditor is concerned regarding the competence or objectivity of the expert, the auditor would ordinarily discuss any reservations with management and consider whether sufficient appropriate audit evidence can be obtained concerning the work of an expert. The auditor may need to undertake additional audit procedures or seek audit evidence from another expert (after taking into account the factors in paragraph 11 of this Auditing Standard).

16 Where an expert is employed by or related to the entity, the auditor would ordinarily consider whether there are any mitigating factors such as professional and/or statutory obligations governing the work of an expert, that would impact on the objectivity of the expert. For example it is common practice for the actuary of a life insurance company to be an employee.

Scope of the Expert’s Work

17 The auditor shall obtain sufficient appropriate audit evidence that the scope of the expert’s work is adequate for the purposes of the audit.

18 Audit evidence may be obtained through a review of the terms of reference which are often set out in written instructions from the entity to the expert. Such instructions to the expert may cover such matters as the following:

• the objectives and scope of the expert’s work;

• a general outline as to the specific matters the auditor expects the expert’s report to cover;

• the intended use by the auditor of the expert’s work, including the possible communication to third parties of the expert’s identity and extent of involvement;

• the extent of the expert’s access to appropriate records and files;

• clarification of the expert’s relationship with the entity, if any;

• confidentiality of the entity’s information; and

• information regarding the assumptions and methods intended to be used by the expert and their consistency with those used in prior periods.

  In the event that these matters are not clearly set out in written instructions to the expert, the auditor may need to communicate with the expert directly to obtain audit evidence in this regard. In obtaining an understanding of the entity, the auditor also ordinarily considers whether to include the expert during the engagement team’s discussion of the susceptibility of the entity’s financial report to material misstatement.

Evaluating the Work of the Expert

19 The auditor shall evaluate the appropriateness of the expert’s work as audit evidence regarding the assertion being considered.

20 The auditor would ordinarily evaluate whether the substance of the expert’s findings is properly reflected in the financial report or supports the assertions, and consideration of:

• source data used;
• assumptions and methods used and their consistency with prior periods; and
• results of the expert’s work in the light of the auditor’s overall knowledge of the business and the results of other audit procedures.

21 When considering whether the expert has used source data which is appropriate in the circumstances, the auditor would ordinarily consider the following procedures:

(a) making enquiries regarding any procedures undertaken by the expert to establish whether the source data is relevant and reliable; and

(b) reviewing or testing the data used by the expert.

22 The appropriateness and reasonableness of assumptions and methods used and their application are the responsibility of the expert. The auditor does not have the same expertise and, therefore, cannot always challenge the expert’s assumptions and methods. However, the auditor will ordinarily need to obtain an understanding of the assumptions and methods used and to consider whether they are appropriate and reasonable, based on the auditor’s knowledge of the business and the results of other audit procedures.

23 If the results of the expert’s work do not provide sufficient appropriate audit evidence, or if the results are not consistent with other audit evidence, the auditor shall resolve the matter.

24 This may involve discussions with the entity and the expert, applying additional audit procedures, including possibly engaging another expert, or modifying the auditor’s report.

Reference to an Expert in the Auditor’s Report

25 When issuing an unmodified auditor’s report, the auditor shall not refer to the work of an expert.

26 Such a reference might be misunderstood to be a modification of the auditor’s opinion or a division of responsibility, neither of which is intended.

27 If, as a result of the work of an expert, the auditor decides to issue a modified auditor’s report, in some circumstances it may be appropriate in explaining the nature of the modification, to refer to or describe the work of the expert (including the identity of the expert and the extent of the expert’s involvement). In these circumstances, the auditor would ordinarily obtain the permission of the expert before making such a reference. If permission is refused and the auditor believes a reference is necessary, the auditor may need to seek legal advice.

Conformity with International Standards on Auditing

28 Except as noted below, this Auditing Standard conforms with International Standard on Auditing ISA 620 Using the Work of an Expert, issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants. The main difference between this Auditing Standard and ISA 620 is:

• This Auditing Standard includes the following explanatory guidance paragraphs that are not included in ISA 620:

♦ Although the auditor may use the work of an expert as audit evidence, under ASA 700 The Auditor’s Report on a General Purpose Financial Report, the auditor retains full responsibility for the audit opinion on the financial report (paragraph 9).

♦ Where an expert is employed by or related to the entity, the auditor would ordinarily consider whether there are any mitigating factors such as professional and/or statutory obligations governing the work of an expert, that would impact on the objectivity of the expert. For example it is common practice for the actuary of a life insurance company to be an employee (paragraph 16).

Compliance with this Auditing Standard enables compliance with ISA 620.

Application

1 This Auditing Standard applies to:

(a) an audit of a financial report for a financial year, or an audit of a financial report for a half-year, in accordance with Part 2M.3 of the Corporations Act 2001; and

(b) an audit of a financial report for any other purpose.

2 This Auditing Standard also applies, as appropriate, to an audit of other financial information.

Introduction

4 The purpose of this Auditing Standard is to establish mandatory requirements and provide explanatory guidance on using the work of an expert as audit evidence.

5 When using the work performed by an expert, the auditor shall obtain sufficient appropriate audit evidence that such work is adequate for the purposes of the audit.

6 “Expert” means a person or firm possessing special skill, knowledge and experience in a particular field other than accounting and auditing.

7 The auditor’s education and experience enable the auditor to be knowledgeable about business matters in general, but the auditor is not expected to have the expertise of a person trained for or qualified to engage in the practice of another profession or occupation, such as an actuary or engineer.

8 An expert may be:

(a) contracted by the entity;

(b) contracted by the auditor;

(c) employed by the entity; or

(d) employed by the auditor.

When the auditor uses the work of an expert employed by the audit firm, the auditor will be able to rely on the firm’s systems for recruitment and training that determine that expert’s capabilities and competence, as explained in ASA 220 Quality Control for Audits of Historical Financial Information, instead of needing to evaluate them for each audit engagement.

9 Although the auditor may use the work of an expert as audit evidence, under ASA 700 The Auditor’s Report on a General Purpose Financial Report, the auditor retains full responsibility for the audit opinion on the financial report.

Determining the Need to Use the Work of an Expert

10 In obtaining an understanding of the entity and performing further procedures in response to assessed risks, the auditor may need to obtain, in conjunction with the entity or independently, audit evidence in the form of reports, opinions, valuations and statements of an expert. Examples include the following:

• valuations of certain types of assets, for example land and buildings, plant and machinery, works of art and precious stones;
• determination of quantities or physical condition of assets, for example minerals stored in stockpiles, underground mineral and petroleum reserves and the remaining useful life of plant and machinery;
• determination of amounts using specialised techniques or methods, for example an actuarial valuation;
• the measurement of work completed and to be completed on contracts in progress; and
• legal opinions concerning interpretations of agreements, statutes and regulations.

11 When determining the need to use the work of an expert, the auditor would ordinarily consider:

(a) the engagement team’s knowledge and previous experience of the matter being considered;

(b) the risk of material misstatement based on the nature, complexity, and materiality of the matter being considered; and

(c) the quantity and quality of other audit evidence expected to be obtained.

Competence and Objectivity of the Expert

12 When planning to use the work of an expert, the auditor shall evaluate the professional competence of the expert.

13 The auditor would ordinarily consider the expert’s:

(a) professional certification or licensing by, or membership in, an appropriate professional body; and

(b) experience and reputation in the field in which the auditor is seeking audit evidence.

14 The auditor shall evaluate the objectivity of the expert.

15 The risk that an expert’s objectivity will be impaired increases when the expert is:

(a) employed by the entity; or

(b) related in some other manner to the entity, for example by being financially dependent upon or having an investment in the entity.

If the auditor is concerned regarding the competence or objectivity of the expert, the auditor would ordinarily discuss any reservations with management and consider whether sufficient appropriate audit evidence can be obtained concerning the work of an expert. The auditor may need to undertake additional audit procedures or seek audit evidence from another expert (after taking into account the factors in paragraph 11 of this Auditing Standard).

16 Where an expert is employed by or related to the entity, the auditor would ordinarily consider whether there are any mitigating factors such as professional and/or statutory obligations governing the work of an expert, that would impact on the objectivity of the expert. For example it is common practice for the actuary of a life insurance company to be an employee.

Scope of the Expert’s Work

17 The auditor shall obtain sufficient appropriate audit evidence that the scope of the expert’s work is adequate for the purposes of the audit.

18 Audit evidence may be obtained through a review of the terms of reference which are often set out in written instructions from the entity to the expert. Such instructions to the expert may cover such matters as the following:

• the objectives and scope of the expert’s work;

• a general outline as to the specific matters the auditor expects the expert’s report to cover;

• the intended use by the auditor of the expert’s work, including the possible communication to third parties of the expert’s identity and extent of involvement;

• the extent of the expert’s access to appropriate records and files;

• clarification of the expert’s relationship with the entity, if any;

• confidentiality of the entity’s information; and

• information regarding the assumptions and methods intended to be used by the expert and their consistency with those used in prior periods.

  In the event that these matters are not clearly set out in written instructions to the expert, the auditor may need to communicate with the expert directly to obtain audit evidence in this regard. In obtaining an understanding of the entity, the auditor also ordinarily considers whether to include the expert during the engagement team’s discussion of the susceptibility of the entity’s financial report to material misstatement.

Evaluating the Work of the Expert

19 The auditor shall evaluate the appropriateness of the expert’s work as audit evidence regarding the assertion being considered.

20 The auditor would ordinarily evaluate whether the substance of the expert’s findings is properly reflected in the financial report or supports the assertions, and consideration of:

• source data used;
• assumptions and methods used and their consistency with prior periods; and
• results of the expert’s work in the light of the auditor’s overall knowledge of the business and the results of other audit procedures.

21 When considering whether the expert has used source data which is appropriate in the circumstances, the auditor would ordinarily consider the following procedures:

(a) making enquiries regarding any procedures undertaken by the expert to establish whether the source data is relevant and reliable; and

(b) reviewing or testing the data used by the expert.

22 The appropriateness and reasonableness of assumptions and methods used and their application are the responsibility of the expert. The auditor does not have the same expertise and, therefore, cannot always challenge the expert’s assumptions and methods. However, the auditor will ordinarily need to obtain an understanding of the assumptions and methods used and to consider whether they are appropriate and reasonable, based on the auditor’s knowledge of the business and the results of other audit procedures.

23 If the results of the expert’s work do not provide sufficient appropriate audit evidence, or if the results are not consistent with other audit evidence, the auditor shall resolve the matter.

24 This may involve discussions with the entity and the expert, applying additional audit procedures, including possibly engaging another expert, or modifying the auditor’s report.

Reference to an Expert in the Auditor’s Report

25 When issuing an unmodified auditor’s report, the auditor shall not refer to the work of an expert.

26 Such a reference might be misunderstood to be a modification of the auditor’s opinion or a division of responsibility, neither of which is intended.

27 If, as a result of the work of an expert, the auditor decides to issue a modified auditor’s report, in some circumstances it may be appropriate in explaining the nature of the modification, to refer to or describe the work of the expert (including the identity of the expert and the extent of the expert’s involvement). In these circumstances, the auditor would ordinarily obtain the permission of the expert before making such a reference. If permission is refused and the auditor believes a reference is necessary, the auditor may need to seek legal advice.

Conformity with International Standards on Auditing

28 Except as noted below, this Auditing Standard conforms with International Standard on Auditing ISA 620 Using the Work of an Expert, issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants. The main difference between this Auditing Standard and ISA 620 is:

• This Auditing Standard includes the following explanatory guidance paragraphs that are not included in ISA 620:

♦ Although the auditor may use the work of an expert as audit evidence, under ASA 700 The Auditor’s Report on a General Purpose Financial Report, the auditor retains full responsibility for the audit opinion on the financial report (paragraph 9).

♦ Where an expert is employed by or related to the entity, the auditor would ordinarily consider whether there are any mitigating factors such as professional and/or statutory obligations governing the work of an expert, that would impact on the objectivity of the expert. For example it is common practice for the actuary of a life insurance company to be an employee (paragraph 16).

Compliance with this Auditing Standard enables compliance with ISA 620.