7073.2 Step 2: Set Roles and Responsibilities

Sep-2020

OAG Guidance

The process of developing the overall audit strategy helps us to determine the nature, timing and extent of resources necessary to perform the engagement. This encompasses our evaluation of the resources to be deployed for specific audit areas, such as the use of appropriately experienced members of the team for higher risk areas or whether it is necessary to involve specialists or experts.

Consider the factors listed in CAS 540.A61 when determining whether the use of specialists or experts would be necessary. A decision to engage specialists or experts is a matter of judgment and in some cases we would not need specialized skills or knowledge to assess the risks and obtain sufficient appropriate evidence over the risks related to management’s estimates. However, for complex estimates with high estimation uncertainty, complexity or subjectivity where a high degree of specialized knowledge or judgment is required, the use of specialists and/or experts may be necessary. Examples include complex asset valuations, liability or reserve estimates and impairment reviews for intangible assets. Use of specialized knowledge will also often be necessary when we deal with fair value measurements. Specialists/experts can be used to provide us with independent estimates of fair values in cases where we lack the expertise and/or experience to develop our own estimates to corroborate management’s fair value measurement. Note that CAS 540.A63 specifically states that we would likely need to engage specialists or experts when auditing expected credit losses of a banking institution or insurance contract liabilities of insurance entities. Consider any additional policies and guidance in your territory that may identify other circumstances where involving specialists/experts is required.

Examples of when it may be particularly helpful to use specialists or experts include:

• The valuation models used in determining fair values are complex, such as complex asset valuation;

• The entity operates in a specialized industry where complex liability or reserve estimates are necessary;

• Where impairment reviews for goodwill or other intangible assets include highly subjective assumptions, or where the relationships between assumptions and other data inputs are non‑linear;

• When we wish to use industry-specific benchmarking data or market‑specific property valuation reports;

• When there are changes in significant assumptions or in the circumstances affecting the carrying value of an item;

• When we have reason to believe that the carrying value of an asset may no longer be appropriate; and

• Where there is higher than normal risk of material misstatement, owing to the degree of estimation uncertainty or level of complexity, subjectivity or other inherent risk factors.

A specialist/expert can help us to

• obtain an understanding of the entity and its environment, processes, and internal controls;
• understand industry trends and practices relevant to the estimates and related disclosures;
• identify and assess risks related to the estimates and related disclosures;
• identify significant assumptions;
• design audit procedures in order to address the risks identified; and
• execute or support the engagement team in the performance of those procedures.

Related Guidance

For further guidance on the use of specialists or experts, refer to OAG Audit 3090 and OAG Audit 3100.

OAG Guidance

The entity may use management’s experts to develop an estimate which the entity uses in preparing its financial statements and related disclosures. Common scenarios where a management’s expert may be involved in developing an estimate include:

• Estimating pension, postretirement and other benefit liabilities
• Determining financial instrument fair values
• Determining real estate values
• Evaluating litigation claims

When an entity uses management’s experts to develop an estimate, follow the guidance in OAG Audit 3111 to evaluate the competence, capabilities and objectivity of the expert, obtain an understanding of their work and evaluate its appropriateness.

An expert is used by management to obtain the support needed for their assertions in the financial statements. We need to consider how to obtain sufficient appropriate audit evidence about those assertions. The sole fact that an expert was involved does not provide us with sufficient appropriate audit evidence. In particular, attention needs to be given to the completeness and accuracy of the data the entity has provided to the expert.

Where management’s expert is employed by the entity who also evaluates their performance and determines their remuneration, this may increase the risk that the expert’s objectivity will be compromised. In these circumstances we apply a commensurate degree of professional skepticism when evaluating the work performed by management’s expert.

If we consider management’s expert not to be competent or objective, or we conclude that their work cannot be used as audit evidence, refer to guidance in the section Evaluating the appropriateness of a management’s expert’s work in OAG Audit 3111. In such cases we would need to perform further procedures and may consider developing our own point estimate or a range.

When management’s expert is used to assist management in making an estimate, consider if the core assurance team has the required expertise or if a specialist or internal expert is needed to assist the core assurance team in evaluating the work of management’s experts.

Related Guidance

For guidance on the use of management’s experts, refer to OAG Audit 3111.

OAG Guidance

In order to make effective use of the work of specialists and experts, it is important that they are involved early during the planning phase of the audit. Additionally, ongoing coordination with and supervision of specialists and experts is essential throughout the audit. This supervision minimizes the risk of “surprises” for either us or the entity. Involve specialists/experts early in planning to understand the timing of their involvement and requirements and invite them to team planning meetings and discussions.

Determine together with the specialist/expert the nature, timing and extent of their involvement in the audit. Their role will typically vary depending on the nature of the estimate, level of assessed risk and other relevant factors, and may include consulting, coaching, or a completing role. For guidance on the use of specialists or experts, refer to OAG Audit 3090 and OAG Audit 3100.

Related Guidance

For further guidance on the use of specialists or experts, refer to OAG Audit 3090 and OAG Audit 3100.

OAG Guidance

Clearly defining the roles of the specialists/experts and the core assurance team is important to the effective use of their work. The engagement leader takes overall responsibility for the engagement, including the use of the work of experts and specialists working with the engagement team. General guidance when using the work of auditor’s experts or specialists, including review of their work and mutual responsibilities, is set out in OAG Audit 3090 and OAG Audit 3100.

Define working practices for interacting with the specialists/experts (e.g., how will coaching notes be raised/addressed) and consider identifying a team member or manager on the core assurance team responsible for managing the specialist/expert relationship.

Related Guidance

For further guidance on the use of specialists or experts, refer to OAG Audit 3090 and OAG Audit 3100.