Annual Audit Manual

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3094 Evaluating the competence, capabilities and objectivity of the auditor’s expert and obtaining an understanding of the field of expertise
Oct-2012

In This Section

Evaluating the competence, capabilities and objectivity of the auditor’s expert

Obtaining an understanding of the field of expertise of the auditor’s expert

Overview

This topic explains:

  • Evaluating the competence, capabilities, and objectivity of the auditor’s expert
  • Obtaining an understanding of the field of expertise of the auditor’s expert
Evaluating the competence, capabilities and objectivity of the auditor’s expert

CAS Requirement

The auditor shall evaluate whether the auditor’s expert has the necessary competence, capabilities and objectivity for the auditor’s purposes. In the case of an auditor’s external expert, the evaluation of objectivity shall include inquiry regarding interests and relationships that may create a threat to that expert’s objectivity. (CAS 620.9)

CAS Guidance

The competence, capabilities and objectivity of an auditor’s expert are factors that significantly affect whether the work of the auditor’s expert will be adequate for the auditor’s purposes. Competence relates to the nature and level of expertise of the auditor’s expert. Capability relates to the ability of the auditor’s expert to exercise that competence in the circumstances of the engagement. Factors that influence capability may include, for example, geographic location, and the availability of time and resources. Objectivity relates to the possible effects that bias, conflict of interest, or the influence of others may have on the professional or business judgment of the auditor’s expert. (CAS 620.A14)

Information regarding the competence, capabilities and objectivity of an auditor’s expert may come from a variety of sources, such as (CAS 620.A15):

  • Personal experience with previous work of that expert.
  • Discussions with that expert.
  • Discussions with other auditors or others who are familiar with that expert’s work.
  • Knowledge of that expert’s qualifications, membership of a professional body or industry association, license to practice, or other forms of external recognition.
  • Published papers or books written by that expert.
  • The auditor’s firm’s quality control policies and procedures. (see OAG Audit 3093)

Matters relevant to evaluating the competence, capabilities and objectivity of the auditor’s expert include whether that expert’s work is subject to technical performance standards or other professional or industry requirements, for example, ethical standards and other membership requirements of a professional body or industry association, accreditation standards of a licensing body, or requirements imposed by law or regulation. (CAS 620.A16)

Other matters that may be relevant include (CAS 620.A17):

  • The relevance of the auditor’s expert’s competence to the matter for which that expert’s work will be used, including any areas of specialty within that expert’s field. For example, a particular actuary may specialize in property and casualty insurance, but have limited expertise regarding pension calculations.
  • The auditor’s expert’s competence with respect to relevant accounting and auditing requirements, for example, knowledge of assumptions and methods, including models where applicable, that are consistent with the applicable financial reporting framework.
  • Whether unexpected events, changes in conditions, or the audit evidence obtained from the results of audit procedures indicate that it may be necessary to reconsider the initial evaluation of the competence, capabilities and objectivity of the auditor’s expert as the audit progresses.

A broad range of circumstances may threaten objectivity, for example, self-interest threats, advocacy threats, familiarity threats, self-review threats, and intimidation threats. Safeguards may eliminate or reduce such threats, and may be created by external structures (for example, the auditor’s expert’s profession, legislation or regulation), or by the auditor’s expert’s work environment (for example, quality control policies and procedures). There may also be safeguards specific to the audit engagement. [In ISA 620, the second sentence states: Such threats may be addressed by eliminating the circumstances that create the threats, or applying safeguards to reduce threats to an acceptable level.] (CAS 620.CA18)

The evaluation of the significance of threats to objectivity and of whether there is a need for safeguards may depend upon the role of the auditor’s expert and the significance of the expert’s work in the context of the audit. There may be some circumstances in which safeguards cannot reduce threats to an acceptable level, for example, if a proposed auditor’s expert is an individual who has played a significant role in preparing the information that is being audited, that is, if the auditor’s expert is a management’s expert. [In ISA 620, this paragraph states: The evaluation of whether the threats to objectivity are at an acceptable level may depend upon the role of the auditor’s expert and the significance of the expert’s work in the context of the audit. In some cases, it may not be possible to eliminate circumstances that create threats or apply safeguards to reduce threats to an acceptable level, for example, if a proposed auditor’s expert is an individual who has played a significant role in preparing the information that is being audited, that is, if the auditor’s expert is a management’s expert.] (CAS 620.CA19)

Additional objectivity considerations for auditor’s external experts

When evaluating the objectivity of an auditor’s external expert, it may be relevant to (CAS 620.A20):

(a) Inquire of the entity about any known interests or relationships that the entity has with the auditor’s external expert that may affect that expert’s objectivity.

(b) Discuss with that expert any applicable safeguards, including any professional requirements that apply to that expert; and evaluate whether the safeguards are adequate to reduce threats to an acceptable level. Interests and relationships that it may be relevant to discuss with the auditor’s expert include:

  • Financial interests.
  • Business and personal relationships.
  • Provision of other services by the expert, including by the organization in the case of an external expert that is an organization.

In some cases, it may also be appropriate for the auditor to obtain a written representation from the auditor’s external expert about any interests or relationships with the entity of which that expert is aware.

Related Guidance

See OAG Audit 3093 for guidance on OAG’ quality control policies and procedures.

OAG Guidance

Taking into account the required considerations, judgment will be involved in deciding the nature, timing, and extent of audit procedures to evaluate the competence, capabilities, and objectivity of the auditor’s expert in accordance with OAG Audit 3093.

In evaluating the competence, capability, and objectivity of auditor’s experts, consider both the personal attributes of the individual and the managerial attributes of the organization.

Evaluating the competence and capabilities of auditor’s experts

Considerations relating to the personal attributes of the individual auditor’s expert may include the following:

  • educational level and continuing education,
  • professional qualifications,
  • membership in professional bodies and license to practice,
  • prior professional experience (including areas of specialization),
  • knowledge of related accounting and auditing requirements, and
  • time spent by the individual on the engagement.

Considerations relating to the auditor’s expert’s organization may include the following:

  • reputation of the organization,
  • availability of competent and capable resources and time,
  • geographic location,
  • practices regarding assignment of individuals in the engagements,
  • supervision and review practices, and
  • monitoring policies for quality in services performed.

Auditor’s internal experts

Where the expert whose work is to be used is an auditor’s internal expert, some reliance may be placed on OAG’s systems for recruitment, training, and assignment of staff; therefore, there is no need to evaluate separately the competence and capabilities of the auditor’s internal expert. However, the team manager and engagement leader still need to consider the competence and capabilities of the expert to perform the work having regard to the engagement circumstances.

Evaluating the objectivity of auditor’s experts

Considerations relating to the personal attributes of the individual auditor’s expert may include the following:

  • other services provided by the individual to the entity, including involvement in the preparation of the financial statements;
  • financial interests; and
  • business and personal relationships.

Considerations relating to the auditor’s expert’s organization may include the following:

  • safeguards to eliminate or reduce objectivity threats;
  • financial interests on the entity;
  • business relationships with the entity; and
  • provision of other services to the entity by the expert, including the involvement in the preparation of the financial statements.

Objectivity considerations of auditor’s internal experts

In evaluating the objectivity of internal experts, reliance may be placed on OAG’s independence policies, systems, and procedures. Unless engagement teams are notified otherwise, evaluation of the objectivity of the expert may be limited to the individual’s independence, personal attributes, and ethical requirements as performed for all members of the engagement team. Refer also to OAG Audit 3030.

Additional objectivity considerations for auditor’s external experts

We typically obtain a written representation from the auditor’s external expert about any interests or relationships with the entity of which that expert is aware, when the auditor’s external expert’s work relates to a significant risk, the auditor’s expert’s work constitutes a significant part of the audit evidence, or there are no alternative sources of audit evidence and we have no prior knowledge and experience in working with the expert.

Obtaining an understanding of the field of expertise of the auditor’s expert

CAS Requirement

The auditor shall obtain a sufficient understanding of the field of expertise of the auditor’s expert to enable the auditor to (CAS 620.10):

(a) Determine the nature, scope and objectives of that expert’s work for the auditor’s purposes; and

(b) Evaluate the adequacy of that work for the auditor’s purposes.

CAS Guidance

The auditor may obtain an understanding of the auditor’s expert’s field of expertise through the means described in paragraph A7, or through discussion with that expert. (CAS 620.A21)

Aspects of the auditor’s expert’s field relevant to the auditor’s understanding may include (CAS 620.A22):

  • Whether that expert’s field has areas of specialty within it that are relevant to the audit (see paragraph A17).
  • Whether any professional or other standards, and regulatory or legal requirements apply.
  • What assumptions and methods, including models where applicable, are used by the auditor’s expert, and whether they are generally accepted within that expert’s field and appropriate for financial reporting purposes.
  • The nature of internal and external data or information the auditor’s expert uses.

OAG Guidance

Taking into account the required considerations, judgment will be involved in deciding the nature, timing, and extent of audit procedures used to obtain an understanding of the field of expertise of the auditor’s expert, in accordance with OAG Audit 3093.

When there is a low risk of material misstatement, the matter is straightforward and the auditor’s expert’s involvement is in relation to advising, we ordinarily obtain an overall understanding of the auditor’s expert’s field of expertise through the experience gained in auditing similar entities requiring such expertise, and through discussions with the auditor’s expert or other auditors.

We ordinarily perform more extensive and thorough procedures in obtaining an understanding of the field of expertise when the auditor’s expert performs audit procedures, we have no prior knowledge and experience with this expert, and the auditor’s expert’s work relates to a significant risk, is subjective, and includes complexity and judgments.

Auditor’s internal experts

Where the expert whose work is to be used is an auditor’s internal expert, reliance may be placed on OAG’s systems for training of staff that provides auditor’s internal experts with an appropriate understanding of the interrelationship of their expertise with the audit process, what audit evidence is needed, and how the work to be performed will supply it. Therefore, even when the auditor’s internal expert’s work relates to a significant risk, is subjective, and includes complexity and judgments, obtain the necessary understanding of the auditor’s expert’s field of expertise through discussions with the expert.