Annual Audit Manual
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3096 Evaluating the adequacy of the auditor’s expert’s work
Jun-2019
In This Section
Evaluating the adequacy of the auditor’s expert’s work
Evaluating findings and conclusions
Evaluating assumptions and methods
Evaluating the source data used by the auditor’s expert
Documentation considerations for the auditor’s expert’s work
Overview
This topic explains:
- Evaluating the adequacy of the auditor’s expert’s work
- Evaluating findings and conclusions
- Evaluating assumptions and methods used
- Evaluating the source data used by the auditor’s expert
- Documentation considerations relating to the auditor’s expert’s work
- Addressing situations where expert’s work is inadequate
CAS Requirement
The auditor shall evaluate the adequacy of the auditor’s expert’s work for the auditor’s purposes, including (CAS 620.12):
(a) The relevance and reasonableness of that expert’s findings or conclusions, and their consistency with other audit evidence;
(b) If that expert’s work involves use of significant assumptions and methods, the relevance and reasonableness of those assumptions and methods in the circumstances; and
(c) If that expert’s work involves the use of source data that is significant to that expert’s work, the relevance, completeness, and accuracy of that source data.
CAS Guidance
The auditor’s evaluation of the auditor’s expert’s competence, capabilities and objectivity, the auditor’s familiarity with the auditor’s expert’s field of expertise, and the nature of the work performed by the auditor’s expert affect the nature, timing and extent of audit procedures to evaluate the adequacy of that expert’s work for the auditor’s purposes. (CAS 620.A32)
CAS Guidance
Specific procedures to evaluate the adequacy of the auditor’s expert’s work for the auditor’s purposes may include (CAS 620.A33):
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Inquiries of the auditor’s expert.
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Reviewing the auditor’s expert’s working papers and reports.
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Corroborative procedures, such as:
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observing the auditor’s expert’s work;
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examining published data, such as statistical reports from reputable, authoritative sources;
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confirming relevant matters with third parties;
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performing detailed analytical procedures;
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reperforming calculations.
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Discussion with another expert with relevant expertise when, for example, the findings or conclusions of the auditor’s expert are not consistent with other audit evidence.
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Discussing the auditor’s expert’s report with management.
Relevant factors when evaluating the relevance and reasonableness of the findings or conclusions of the auditor’s expert, whether in a report or other form, may include whether they are (CAS 620.A34):
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Presented in a manner that is consistent with any standards of the auditor’s expert’s profession or industry;
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Clearly expressed, including reference to the objectives agreed with the auditor, the scope of the work performed and standards applied;
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Based on an appropriate period and take into account subsequent events, where relevant;
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Subject to any reservation, limitation or restriction on use, and if so, whether this has implications for the auditor; and
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Based on appropriate consideration of errors or deviations encountered by the auditor’s expert.
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 findings and conclusions of the auditor’s expert in accordance with OAG Audit 3093.
Where the expert’s work is subject to a recognized methodology (for example, published by the organization to which the expert belongs), if not otherwise clear from relevant documentation, confirm that this methodology has been used.
When there is a low risk of material misstatement, the matter is straightforward, and we have significant prior knowledge and experience with the expert, we ordinarily evaluate the findings and conclusions of the auditor’s expert through inquiries and reviews of the final reports.
When there is a significant risk of material misstatement, the matter is complex with judgments involved, the auditor’s expert is performing significant audit procedures, and we don’t have any prior knowledge and experience with the expert, we consider performing more rigorous procedures. For example, we may evaluate the findings and conclusions of the auditor’s expert by performing reviews of the detailed working papers and reports, by making further inquiries as necessary, and by performing corroborative procedures, including detailed analytical procedures. Consider, if practical, re-performance of calculations and/or confirmation of relevant information with third parties.
Auditor’s internal experts
When the auditor’s internal expert’s work has been subject to a review performed by a more experienced and senior person within the expert’s service line, we will ordinarily perform fewer procedures in evaluating the findings and conclusions of the auditor’s internal expert; however, we will at least read the auditor’s expert’s report or other documentation to identify any matters outstanding or unresolved, and any areas that may need improvement from a documentation perspective.
Where the expert whose work is to be used is an auditor’s internal expert, reliance may be placed on OAG’s systems for adequate training and assignment of staff that have an adequate understanding of the audit evidence required in the circumstances, the procedures required to be performed in order to obtain such evidence, and the implications of their findings on the audit. Therefore, limit the procedures performed in the evaluating findings and conclusions reached by the auditor’s internal expert by performing only a review of the auditor’s internal expert’s working papers and reports, even when there is a significant risk of material misstatement, the matter is complex with judgments involved, and the auditor’s internal expert is performing significant audit procedures.
CAS Guidance
When the auditor’s expert’s work is to evaluate underlying assumptions and methods, including models where applicable, used by management in developing an accounting estimate, the auditor’s procedures are likely to be primarily directed to evaluating whether the auditor’s expert has adequately reviewed those assumptions and methods. When the auditor’s expert’s work is to develop an auditor’s point estimate or an auditor’s range for comparison with management’s point estimate, the auditor’s procedures may be primarily directed to evaluating the assumptions and methods, including models where appropriate, used by the auditor’s expert. (CAS 620.A35)
CAS 540 discusses the assumptions and methods used by management in making accounting estimates, including the use in some cases of highly specialized, entity-developed models. Although that discussion is written in the context of the auditor obtaining sufficient appropriate audit evidence regarding management’s assumptions and methods, it may also assist the auditor when evaluating an auditor’s expert’s assumptions and methods. (CAS 620.A36) See CAS 540.8, CAS 540.13 and CAS 540.15 for guidance on assumptions and methods used.
When an auditor’s expert’s work involves the use of significant assumptions and methods, factors relevant to the auditor’s evaluation of those assumptions and methods include whether they are (CAS 620.A37):
- Generally accepted within the auditor’s expert’s field;
- Consistent with the requirements of the applicable financial reporting framework;
- Dependent on the use of specialized models; and
- Consistent with those of management, and if not, the reason for, and effects of, the differences.
OAG Guidance
Judgment will be involved in deciding the nature, timing, and extent of audit procedures used to evaluate the assumptions and methods used by the auditor’s expert in accordance with OAG Audit 3093.
When there is a significant risk of material misstatement, the matter is complex with judgments involved, significant assumptions and methods have been used, the auditor’s expert is performing significant audit procedures, and we don’t have any prior knowledge and experience with this expert, we ordinarily perform extended procedures in evaluating such assumptions and methods, taking into consideration the guidance developed in obtaining sufficient appropriate audit evidence of management’s assumptions and methods; such procedures are included in OAG Audit 7072, OAG Audit 7073 and OAG Audit 7074.
CAS Guidance
When an auditor’s expert’s work involves the use of source data that is significant to that expert’s work, procedures such as the following may be used to test that data (CAS 620.A38):
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Verifying the origin of the data, including obtaining an understanding of, and where applicable testing, the internal controls over the data and, where relevant, its transmission to the expert.
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Reviewing the data for completeness and internal consistency.
In many cases, the auditor may test source data. However, in other cases, when the nature of the source data used by an auditor’s expert is highly technical in relation to the expert’s field, that expert may test the source data. If the auditor’s expert has tested the source data, inquiry of that expert by the auditor, or supervision or review of that expert’s tests may be an appropriate way for the auditor to evaluate that data’s relevance, completeness, and accuracy. (CAS 620.A39)
OAG Guidance
When evaluating the source data used by the auditor’s expert consider the guidance in OAG Audit 4028.4 to the extent that the expert utilizes system‑generated information.
CAS Guidance
Agreement on the respective roles and responsibilities of the auditor and the auditor’s expert may also include agreement about access to, and retention of, each other’s working papers. When the auditor’s expert is a member of the engagement team, that expert’s working papers form part of the audit documentation. Subject to any agreement to the contrary, auditor’s external experts’ working papers are their own and do not form part of the audit documentation. (CAS 620.A29)
OAG Guidance
In evaluating the adequacy of an auditor’s expert’s work, consider the sufficiency of the documentation prepared by the expert. Documentation of the auditor’s expert’s work is performed in accordance with CAS 230 Audit Documentation. It is expected that the documentation of the auditor’s expert’s work will be prepared in sufficient detail to provide a clear understanding of its purpose, the procedures performed, the conclusions reached, the reasons for those conclusions, and the supporting evidence, including the source of that evidence, where appropriate. Ordinarily, auditor’s expert’s work product is a report, which is included in the audit file by the core assurance team.
The audit documentation prepared by the auditor’s expert ordinarily includes:
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whether the procedures performed were in accordance with the agreed nature, scope, and objectives;
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a detailed description of procedures performed, including the methodology applied;
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application of any professional standards and the related financial reporting framework;
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description of source data used;
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procedures performed to test such source data (if applicable);
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details of the findings and conclusions, including any significant assumptions and judgments made and methods used; and
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details of who performed the work and the date the work was completed.
We are responsible for the level of audit evidence and documentation included in the audit file; therefore, we are expected to discuss and agree the specific items to be documented by the auditor’s expert. Documentation needs to provide the reviewer with an understanding of the nature, timing and extent of procedures that were performed, results of testing, audit evidence obtained, significant judgments made, and conclusions reached by the auditor’s expert. When we conclude that the level of documentation of the auditor’s expert’s work is not sufficient to meet the documentation requirements, request from the auditor’s expert to revise the related documentation.
Auditor’s internal expert additional documentation considerations
When an auditor’s internal expert is involved, ordinarily their memorandum/report is attached in the audit file by the core assurance team. It may alternatively be documented directly by the expert in the appropriate area.
The work performed by auditor’s internal experts is subject to the same documentation (including document retention) policy in OAG Audit 1100 that is applicable to the core assurance members of the engagement team. OAG Audit 1111 discusses the nature and extent of audit documentation. Key documentation considerations are:
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The audit engagement database and/or file is the sole repository of all documents supporting the audit opinion. See OAG Audit 1112.
Auditor’s internal experts, in coordination with the core assurance team, will retain in the audit file any of the documents required to be retained pursuant to the retention guidance provided in OAG Audit 1190 and OAG Audit 1170.
When auditor’s internal experts use technology tools as part of the audit, apply the same documentation principles as those described in OAG Audit 3101 for specialists in accounting or auditing.
Documentation performed by the core assurance team
The core assurance team is expected to document the procedures performed and all significant judgments and conclusions made in relation to:
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the decision to use an auditor’s expert or not;
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the evaluation of the competence, capabilities, and objectivity of the auditor’s expert;
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the auditor’s understanding of the auditor’s expert’s field of expertise;
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the agreement, including the terms and arrangements, made with the auditor’s expert;
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the evaluation of the adequacy of the auditor’s expert’s work including:
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the relevance and reasonableness of the expert’s findings or conclusions and their consistency with other audit evidence;
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the relevance and reasonableness of any significant assumptions and methods used by the auditor’s expert;
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the procedures performed to test the relevance, reasonableness, completeness, and accuracy of source data used by the auditor’s expert;
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the procedures performed and conclusions reached on the relevance, reasonableness, completeness, and accuracy of source data used, if source data are tested by the core assurance team.
CAS Requirement
If the auditor determines that the work of the auditor’s expert is not adequate for the auditor’s purposes, the auditor shall (CAS 620.13):
(a) Agree with that expert on the nature and extent of further work to be performed by that expert; or
(b) Perform additional audit procedures appropriate to the circumstances.
CAS Guidance
If the auditor concludes that the work of the auditor’s expert is not adequate for the auditor’s purposes and the auditor cannot resolve the matter through the additional audit procedures required by paragraph 13, which may involve further work being performed by both the expert and the auditor, or include employing or engaging another expert, it may be necessary to express a modified opinion in the auditor’s report in accordance with CAS 705 because the auditor has not obtained sufficient appropriate audit evidence. (CAS 620.A40)
See CAS 705.6(b) for guidance on modifications to the audit opinion.
OAG Guidance
Taking into account the required considerations, judgment will be involved in deciding the nature, timing, and extent of audit procedures to perform when we determine that the auditor’s expert’s work is not adequate, in accordance with OAG Audit 3093.
When there is a significant risk of material misstatement, the matter is complex with judgments involved, the auditor’s expert is performing significant audit procedures, and we don’t have any prior knowledge and experience with the expert, we ordinarily agree with that expert on further work to be performed, or employ or engage another auditor’s expert to provide us with the additional appropriate audit evidence required for our purposes.
Related Guidance
See OAG Audit 8013 for guidance on modified audit opinion.