Expert

​

Reliance on Expert Case Example: ABC Manufacturing Company

Context

Given the diversified operations and assets of ABC Manufacturing Company, the external audit team may need to rely on the work of various experts. This could include real estate appraisers for property valuations, actuaries for pension liabilities, or environmental consultants for potential remediation liabilities.

Audit Objective

To determine whether the auditor can rely on the work of experts as audit evidence in specific areas, assessing the expert’s competence, capabilities, and objectivity, and evaluating the appropriateness of the expert’s work for the auditor’s purposes.

Types of Audit Evidence and Documentation for Reliance on Expert

1. Identification of the Need for an Expert

• Case: Identify audit areas where the use of an expert is necessary due to the complexity or specialized nature of the matter being audited.

• Documentation: Document the rationale for determining the need for an expert in specific audit areas, including the complexity and significance of the matter to the financial statements.

2. Assessment of the Expert’s Competence and Objectivity

• Case: Evaluate the expert’s qualifications, reputation, independence, and objectivity to ensure their work can be relied upon for audit purposes.

• Documentation: Summarize the qualifications and assessment of the expert, including relevant professional certifications, experience, and any relationships with the company that might affect their objectivity.

3. Understanding the Expert’s Work

• Case: Gain an understanding of the expert’s work, including the scope, objectives, and basis of the work performed, methodologies used, and the source data relied upon.

• Documentation: Document the auditor’s understanding of the expert’s work, including the scope, approach, and methods employed by the expert, and the auditor’s assessment of the reasonableness and relevance of the work to the audit.

4. Evaluation of the Expert’s Work

• Case: Evaluate the appropriateness and reasonableness of the expert’s work and conclusions, considering the audit objectives and financial statement assertions affected.

• Documentation: Prepare an analysis of the expert’s work, including the auditor’s conclusions regarding the adequacy of the work for audit purposes, any significant assumptions made by the expert, and the impact of the expert’s findings on the audit.

5. Agreements and Communications with the Expert

• Case: Document any agreements or communications with the expert, including the nature, scope, and objectives of the expert’s work, and any instructions provided by the auditor.

• Documentation: Summarize the terms of engagement with the expert, key communications, and instructions provided, ensuring clarity regarding the use of the expert’s work in the context of the audit.

6. Conclusion on Reliance on the Expert’s Work

• Case: Based on the evaluation, conclude whether the expert’s work is reliable and appropriate for the auditor’s purposes, and consider the implications for the audit opinion.

• Documentation: Document the auditor’s conclusion regarding the reliance on the expert’s work, including how the work was used in forming the audit opinion and any adjustments to the financial statements or disclosures that were necessary as a result of the expert’s findings.

7. Communication with Those Charged with Governance

• Case: Communicate with those charged with governance regarding the use of experts in the audit, including the reasons for reliance on experts and the impact of their work on the audit.

• Documentation: Summarize the communications with those charged with governance about the reliance on experts, including any discussions about the selection of experts, the scope of their work, and their findings.

Conclusion

Reliance on experts is a critical aspect of auditing areas of a financial statement that require specialized knowledge. Through careful evaluation and documentation of the expert’s work, auditors ensure that this reliance is justified and supports the overall audit conclusions. Documenting each step of the process, from the selection of the expert to the conclusion on the reliance on their work, provides a clear trail of audit evidence that contributes to the reliability of the financial statements.