(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.
Part AUDITING STANDARD ASA 620 - ASA 620 - Using the Work of an Expert - April 2006 - AUDITING STANDARD ASA 620 | Zoe