ISA 620 - Reliance on Expert

Question 1

ISA 620 USING THE WORK OF AN AUDITOR’S EXPERT

Answer 1

AUDITOR’S Expert

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.

MANAGEMENT’S Expert

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

Question 2

ISA 620 USING THE WORK OF AN AUDITOR’S EXPERT

Answer 2

1. Assess reliability of the PERSON
2. Assess reasonableness of their WORK

− Actuarial valuations
− Fair value of share options, derivatives
− Property valuation
− Valuation of construction WIP
− Valuation of specialist inventory - livestock, wines, jewellery
− Assessment of oil reserves
− Legal opinions on the likelihood & outcome of lawsuits

Before we start cooperation with one!

Question 2

ISA 620 USING THE WORK OF AN AUDITOR’S EXPERT

Assessing RELIABILITY of AUDITOR’S expert

Answer 2

COMPETENCE

This should include considering the expert’s:
R - Reputation - The person must be recognized as an expert in his field.
E - Experience
- The person must have many years of relevant experience in the field the auditor is seeking help for.
Q - Qualification - This means that the person must be a member of a relevant professional body & be licensed

CAPABILITY (Practical considerations BEFORE engaging the expert)

This relates to the expert’s ability to exercise that competence in the circumstance of the audit engagement. Factors that influence capability may include, for example, geographic location, and the availability of time and resources.
Please READ the scenario in the Exam Q carefully to see whether the work has already been done by the expert. If so, leave out the point on CAPABILITY in your answer.

OBJECTIVITY

This means that the expert should Independent & free from any vested interests (eg holding shares) in the client)

C-C-O REQI

Question 2

ISA 620 USING THE WORK OF AN AUDITOR’S EXPERT

Assessing the REASONABLENESS of the work of the expert

Answer 2

1. NATURE & SCOPE OF WORK
Consider whether the written instructions provided by the auditor to the auditor expert such as the scope of the work, have been followed by the expert. If the expert has deviated from the agreed scope of work, it is likely to be less relevant and reliable.

2. RELEVANCE OF CONCLUSION

M - MODEL

− REVIEW the model / method used by the expert to confirm appropriateness.

A - ASSUMPTIONS

− REVIEW the assumptions used in expert’s calculations to confirm they are in line with client circumstances & market conditions.

D - DATA

• INSPECT _______ relating to __________ to confirm accuracy of source data used in expert’s calculations.

C - CALCULATIONS (be careful, as it is not not relevant for each type of work done!)

• RECALCULATE workings to confirm ___________________

S - SUBSEQUENT EVENTS (e.g. Property valued at 10m but right after Y/E sold only for 8m!)

• REVIEW the auditor’s expert’s working papers to ensure that he has taken into account events after the reporting date where necessary.

MADCS