Examples of Management’s Experts
The preparation and presentation of a financial report and/or other historical financial information of an entity is the responsibility of management and those charged with governance. Determination of amounts included in the financial report and/or other historical financial information may require expertise in a field other than accounting or auditing, such expertise may be obtained by management using a management’s expert.
An individual may possess expertise in accounting or auditing, as well as expertise in a field other than accounting or auditing (for example an actuary may also be an accountant). In these circumstances, the determination of whether that individual is a management’s expert depends on the nature of the work performed. For example, an individual with expertise in applying methods of accounting for deferred income tax can often be easily distinguished from an expert in taxation law. The former is not a management’s expert for the purposes of this Guidance Statement as this constitutes accounting expertise; the latter is an expert for the purposes of this Guidance Statement as this constitutes legal expertise. Similar distinctions may also be able to be made in other areas, for example:
- Between expertise in methods of accounting for financial instruments, and expertise in complex modelling for the purpose of valuing financial instruments, the former is not considered to be a management’s expert as this constitutes accounting expertise;
- An entity’s internal expertise in IT controls is not considered to be a management’s expert as management is responsible for the design and implementation of controls that is integral to the functioning of the financial reporting system and preparation of the financial report.
Management may engage or employ experts (this may include but is not limited to actuaries, valuers, engineers, environmental consultants, geologists, scientists, health practitioners, taxation specialists, legal advisors and other industry specialists) to obtain the necessary information to prepare the financial report and/or historical financial information. Examples of such expertise include:
- Valuation (for example, high-technology materials or equipment, complex financial instruments, land and buildings, intangibles, investments and environmental liabilities);
- Determination of physical characteristics relating to quantity on hand or condition (for example, quantity or condition of minerals, mineral reserves, or raw materials stored in stockpiles);
- Determination of amounts derived by using specialised techniques or methods (for example, actuarial calculations of liabilities associated with insurance contracts or employee benefit plans);
- Interpretation of technical requirements of contract, laws and regulations. This may be done in some cases by those possessing legal expertise. ASA 502 Audit Evidence – Specific Considerations for Litigation and Claims establishes requirements and provides application and other explanatory material regarding considerations by an auditor in obtaining sufficient appropriate audit evidence relating to litigation and claims. The requirement in ASA 502 is for the auditor to consider the applicable requirements and guidance on using the work of an expert contained in ASA 500 before using the work of on in-house or external legal counsel as audit evidence.