(Ref: Para. 6(a))

Expertise in a field other than accounting or auditing may include expertise in relation to such matters as:

• The valuation of complex financial instruments, land and buildings, plant and machinery, jewellery, works of art, antiques, intangible assets, assets acquired and liabilities assumed in business combinations and assets that may have been impaired.
• The actuarial calculation of liabilities associated with insurance contracts or employee benefit plans.
• The estimation of oil and gas reserves.
• The valuation of environmental liabilities, and site clean-up costs.
• The interpretation of contracts, laws and regulations.
• The analysis of complex or unusual tax compliance issues.

In many cases, distinguishing between expertise in accounting or auditing, and expertise in another field, will be straightforward, even where this involves a specialised area of accounting or auditing. 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 an expert for the purposes of this Auditing Standard as this constitutes accounting expertise; the latter is an expert for the purposes of this Auditing Standard 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. In some cases, however, particularly those involving an emerging area of accounting or auditing expertise, distinguishing between specialised areas of accounting or auditing, and expertise in another field, will be a matter of professional judgement.  Applicable professional rules and standards regarding education and competency requirements for accountants and auditors may assist the auditor in exercising that judgement.^[4]

It is necessary to apply judgement when considering how the requirements of this Auditing Standard are affected by the fact that an auditor’s expert may be either an individual or an organisation.  For example, when evaluating the competence, capabilities and objectivity of an auditor’s expert, it may be that the expert is an organisation the auditor has previously used, but the auditor has no prior experience of the individual expert assigned by the organisation for the particular engagement; or it may be the reverse, that is, the auditor may be familiar with the work of an individual expert but not with the organisation that expert has joined.  In either case, both the personal attributes of the individual and the managerial attributes of the organisation (such as systems of quality control the organisation implements) may be relevant to the auditor’s evaluation.

(Ref: Para. 7)

An auditor’s expert may be needed to assist the auditor in one or more of the following:

• Obtaining an understanding of the entity and its environment, including its internal control.
• Identifying and assessing the risks of material misstatement.
• Determining and implementing overall responses to assessed risks at the financial statement level.
• Designing and performing further audit procedures to respond to assessed risks at the assertion level, comprising tests of controls or substantive procedures.
• Evaluating the sufficiency and appropriateness of audit evidence obtained in forming an opinion on the financial report.

The risks of material misstatement may increase when expertise in a field other than accounting is needed for management to prepare the financial report, for example, because this may indicate some complexity, or because management may not possess knowledge of the field of expertise.  If in preparing the financial report management does not possess the necessary expertise, a management’s expert may be used in addressing those risks.  Relevant controls, including controls that relate to the work of a management’s expert, if any, may also reduce the risks of material misstatement.

If the preparation of the financial report involves the use of expertise in a field other than accounting, the auditor, who is skilled in accounting and auditing, may not possess the necessary expertise to audit that financial report.  The engagement partner is required to be satisfied that the engagement team, and any auditor’s experts who are not part of the engagement team, collectively have the appropriate competence and capabilities to perform the audit engagement.^[5]  Further, the auditor is required to ascertain the nature, timing and extent of resources necessary to perform the engagement.^[6]  The auditor’s determination of whether to use the work of an auditor’s expert, and if so when and to what extent, assists the auditor in meeting these requirements.  As the audit progresses, or as circumstances change, the auditor may need to revise earlier decisions about using the work of an auditor’s expert.

An auditor who is not an expert in a relevant field other than accounting or auditing may nevertheless be able to obtain a sufficient understanding of that field to perform the audit without an auditor’s expert. This understanding may be obtained through, for example:

• Experience in auditing entities that require such expertise in the preparation of their financial report.
• Education or professional development in the particular field. This may include formal courses or discussion with individuals possessing expertise in the relevant field for the purpose of enhancing the auditor’s own capacity to deal with matters in that field. Such discussion differs from consultation with an auditor’s expert regarding a specific set of circumstances encountered on the engagement where that expert is given all the relevant facts that will enable the expert to provide informed advice about the particular matter.^[7]
• Discussion with auditors who have performed similar engagements.

In other cases, however, the auditor may determine that it is necessary, or may choose, to use an auditor’s expert to assist in obtaining sufficient appropriate audit evidence. Considerations when deciding whether to use an auditor’s expert may include:

• Whether management has used a management’s expert in preparing the financial report (see paragraph A9).
• The nature and significance of the matter, including its complexity.
• The risks of material misstatement in the matter.
• The expected nature of procedures to respond to identified risks, including the auditor’s knowledge of and experience with the work of experts in relation to such matters; and the availability of alternative sources of audit evidence. 

When management has used a management’s expert in preparing the financial report, the auditor’s decision on whether to use an auditor’s expert may also be influenced by such factors as:

• The nature, scope and objectives of the management’s expert’s work.
• Whether the management’s expert is employed by the entity, or is a party engaged by it to provide relevant services.
• The extent to which management can exercise control or influence over the work of the management’s expert.
• The management’s expert’s competence and capabilities.
• Whether the management’s expert is subject to technical performance standards or other professional or industry requirements.
• Any controls within the entity over the management’s expert’s work.

ASA 500^[8] includes requirements and guidance regarding the effect of the competence, capabilities and objectivity of management’s experts on the reliability of audit evidence.

(Ref: Para. 8)

The nature, timing and extent of audit procedures with respect to the requirements in paragraphs 9-13 of this Auditing Standard will vary depending on the circumstances. For example, the following factors may suggest the need for different or more extensive procedures than would otherwise be the case:

• The work of the auditor’s expert relates to a significant matter that involves subjective and complex judgements.
• The auditor has not previously used the work of the auditor’s expert, and has no prior knowledge of that expert’s competence, capabilities and objectivity.
• The auditor’s expert is performing procedures that are integral to the audit, rather than being consulted to provide advice on an individual matter.
• The expert is an auditor’s external expert and is not, therefore, subject to the firm’s quality control policies and procedures.

The Auditor’s Firm’s Quality Control Policies and Procedures (Ref: Para. 8(e))

An auditor’s internal expert may be a partner or staff, including temporary staff, of the auditor’s firm, and therefore subject to the quality control policies and procedures of that firm in accordance with ASQC 1.^[9],[10]  Alternatively, an auditor’s internal expert may be a partner or staff, including temporary staff, of a network firm, which may share common quality control policies and procedures with the auditor’s firm.

An auditor’s external expert is not a member of the engagement team and is not subject to quality control policies and procedures in accordance with ASQC 1.^[11] In some jurisdictions, however, law or regulation may require that an auditor’s external expert be treated as a member of the engagement team, and may therefore be subject to relevant ethical requirements, including those pertaining to independence, and other professional requirements, as determined by that law or regulation.

Engagement teams are entitled to rely on the firm’s system of quality control, unless information provided by the firm or other parties suggests otherwise.^[12] The extent of that reliance will vary with the circumstances, and may affect the nature, timing and extent of the auditor’s procedures with respect to such matters as

• Competence and capabilities, through recruitment and training programs.
• Objectivity. Auditor’s internal experts are subject to relevant ethical requirements, including those pertaining to independence.
• The auditor’s evaluation of the adequacy of the auditor’s expert’s work. For example, the firm’s training programs may provide auditor’s internal experts with an appropriate understanding of the interrelationship of their expertise with the audit process. Reliance on such training and other firm processes, such as protocols for scoping the work of auditor’s internal experts, may affect the nature, timing and extent of the auditor’s procedures to evaluate the adequacy of the auditor’s expert’s work.
• Adherence to regulatory and legal requirements, through monitoring processes.
• Agreement with the auditor’s expert.

Such reliance does not reduce the auditor’s responsibility to meet the requirements of this Auditing Standard.

(Ref: Para. 9)

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 judgement of the auditor’s expert.

Information regarding the competence, capabilities and objectivity of an auditor’s expert may come from a variety of sources, such as:

• 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, licence 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 paragraphs A11- A13).

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.

Other matters that may be relevant include:

• 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 specialise 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.  Such threats may be addressed by eliminating the circumstances that create the threats, or applying safeguards to reduce threats to an acceptable level.  There may also be safeguards specific to the audit engagement.

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.

When evaluating the objectivity of an auditor’s external expert, it may be relevant to:

1. Enquire 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.
2. 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 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 organisation in the case of an external expert that is an organisation.

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.

(Ref: Para. 10)

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.

Aspects of the auditor’s expert’s field relevant to the auditor’s understanding may include:

• 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.

(Ref: Para 11)

The nature, scope and objectives of the auditor’s expert’s work may vary considerably with the circumstances, as may the respective roles and responsibilities of the auditor and the auditor’s expert, and the nature, timing and extent of communication between the auditor and the auditor’s expert.  It is therefore required that these matters are agreed between the auditor and the auditor’s expert regardless of whether the expert is an auditor’s external expert or an auditor’s internal expert.

The matters noted in paragraph 8 may affect the level of detail and formality of the agreement between the auditor and the auditor’s expert, including whether it is appropriate that the agreement be in writing. For example, the following factors may suggest the need for more a detailed agreement than would otherwise be the case, or for the agreement to be set out in writing:

• The auditor’s expert will have access to sensitive or confidential entity information.
• The respective roles or responsibilities of the auditor and the auditor’s expert are different from those normally expected.
• Multi-jurisdictional legal or regulatory requirements apply.
• The matter to which the auditor’s expert’s work relates is highly complex.
• The auditor has not previously used work performed by that expert.
• The greater the extent of the auditor’s expert’s work, and its significance in the context of the audit.

The agreement between the auditor and an auditor’s external expert is often in the form of an engagement letter.  Appendix 1 lists matters that the auditor may consider for inclusion in such an engagement letter, or in any other form of agreement with an auditor’s external expert.

When there is no written agreement between the auditor and the auditor’s expert, evidence of the agreement may be included in, for example:

• Planning memoranda, or related working papers such as the audit program.
• The policies and procedures of the auditor’s firm. In the case of an auditor’s internal expert, the established policies and procedures to which that expert is subject may include particular policies and procedures in relation to that expert’s work. The extent of documentation in the auditor’s working papers depends on the nature of such policies and procedures. For example, no documentation may be required in the auditor’s working papers if the auditor’s firm has detailed protocols covering the circumstances in which the work of such an expert is used.

Nature, Scope and Objectives of Work (Ref: Para. 11(a))

It may often be relevant when agreeing on the nature, scope and objectives of the auditor’s expert’s work to include discussion of any relevant technical performance standards or other professional or industry requirements that the expert will follow.

Respective Roles and Responsibilities (Ref: Para. 11(b))

Agreement on the respective roles and responsibilities of the auditor and the auditor’s expert may include:

• Whether the auditor or the auditor’s expert will perform detailed testing of source data.
• Consent for the auditor to discuss the auditor’s expert’s findings or conclusions with the entity and others, and to include details of that expert’s findings or conclusions in the basis for a modified opinion in the auditor’s report, if necessary (see paragraph A42).
• Any agreement to inform the auditor’s expert of the auditor’s conclusions concerning that expert’s work.

Working Papers

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.

Communication (Ref: Para. 11(c))

Effective two-way communication facilitates the proper integration of the nature, timing and extent of the auditor’s expert’s procedures with other work on the audit, and appropriate modification of the auditor’s expert’s objectives during the course of the audit.  For example, when the work of the auditor’s expert relates to the auditor’s conclusions regarding a significant risk, both a formal written report at the conclusion of that expert’s work, and oral reports as the work progresses, may be appropriate.  Identification of specific partners or staff who will liaise with the auditor’s expert, and procedures for communication between that expert and the entity, assists timely and effective communication, particularly on larger engagements.

Confidentiality (Ref: Para. 11(d))

It is necessary for the confidentiality provisions of relevant ethical requirements that apply to the auditor also to apply to the auditor’s expert.  Additional requirements may be imposed by law or regulation.  The entity may also have requested that specific confidentiality provisions be agreed with auditor’s external experts.

(Ref: Para. 12)

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.

The Findings and Conclusions of the Auditor’s Expert (Ref: Para. 12(a))

Specific procedures to evaluate the adequacy of the auditor’s expert’s work for the auditor’s purposes may include:

• Enquiries of the auditor’s expert.
• Reviewing the auditor’s expert’s working papers and reports.
• Corroborative procedures, such as:
  • Observing the auditor’s expert’s work;
  • Examining published data, such as statistical reports from reputable, authoritative sources;
  • Confirming relevant matters with third parties;
  • Performing detailed analytical procedures; and
  • Re-performing calculations.
• 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.
• 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:

• Presented in a manner that is consistent with any standards of the auditor’s expert’s profession or industry;
• Clearly expressed, including reference to the objectives agreed with the auditor, the scope of the work performed and standards applied;
• Based on an appropriate period and take into account subsequent events, where relevant;
• Subject to any reservation, limitation or restriction on use, and if so, whether this has implications for the auditor; and
• Based on appropriate consideration of errors or deviations encountered by the auditor’s expert.

Assumptions, Methods and Source Data

Assumptions and Methods (Ref: Para. 12(b))

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.

ASA 540^[13] discusses the assumptions and methods used by management in making accounting estimates, including the use in some cases of highly specialised, 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.

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:

• Generally accepted within the auditor’s expert’s field;
• Consistent with the requirements of the applicable financial reporting framework;
• Dependent on the use of specialised models; and
• Consistent with those of management, and if not, the reason for, and effects of, the differences.

Source Data Used by the Auditor’s Expert (Ref: Para. 12(c))

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:

• 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.
• 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, enquiry 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.

Inadequate Work (Ref: Para. 13)

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 ASA 705 because the auditor has not obtained sufficient appropriate audit evidence.^[14]

(Ref: Para. 14-15)

In some cases, law or regulation may require a reference to the work of an auditor’s expert, for example, for the purposes of transparency in the public sector.

It may be appropriate in some circumstances to refer to the auditor’s expert in an auditor’s report containing a modified opinion, to explain the nature of the modification.  In such circumstances, the auditor may need the permission of the auditor’s expert before making such a reference.

(Ref: Para. A25)

This Appendix lists matters that the auditor may consider for inclusion in any agreement with an auditor’s external expert. The following list is illustrative and is not exhaustive; it is intended only to be a guide that may be used in conjunction with the considerations outlined in this Auditing Standard. Whether to include particular matters in the agreement depends on the circumstances of the engagement. The list may also be of assistance in considering the matters to be included in an agreement with an auditor’s internal expert.

Nature, Scope and Objectives of the Auditor’s External Expert’s Work

• The nature and scope of the procedures to be performed by the auditor’s external expert.
• The objectives of the auditor’s external expert’s work in the context of materiality and risk considerations concerning the matter to which the auditor’s external expert’s work relates, and, when relevant, the applicable financial reporting framework.
• Any relevant technical performance standards or other professional or industry requirements the auditor’s external expert will follow.
• The assumptions and methods, including models where applicable, the auditor’s external expert will use, and their authority.
• The effective date of, or when applicable the testing period for, the subject matter of the auditor’s external expert’s work, and requirements regarding subsequent events.

The Respective Roles and Responsibilities of the Auditor and the Auditor’s External Expert

• Relevant auditing and accounting standards, and relevant regulatory or legal requirements.
• The auditor’s external expert’s consent to the auditor’s intended use of that expert’s report, including any reference to it, or disclosure of it, to others, for example reference to it in the basis for a modified opinion in the auditor’s report, if necessary, or disclosure of it to management or an audit committee.
• The nature and extent of the auditor’s review of the auditor’s external expert’s work.
• Whether the auditor or the auditor’s external expert will test source data.
• The auditor’s external expert’s access to the entity’s records, files, personnel and to experts engaged by the entity.
• Procedures for communication between the auditor’s external expert and the entity.
• The auditor’s and the auditor’s external expert’s access to each other’s working papers.
• Ownership and control of working papers during and after the engagement, including any file retention requirements.
• The auditor’s external expert’s responsibility to perform work with due skill and care.
• The auditor’s external expert’s competence and capability to perform the work.
• The expectation that the auditor’s external expert will use all knowledge that expert has that is relevant to the audit or, if not, will inform the auditor.
• Any restriction on the auditor’s external expert’s association with the auditor’s report.
• Any agreement to inform the auditor’s external expert of the auditor’s conclusions concerning that expert’s work.

Communications and Reporting

• Methods and frequency of communications, including:
  • How the auditor’s external expert’s findings or conclusions will be reported (for example, written report, oral report, ongoing input to the engagement team).
  • Identification of specific persons within the engagement team who will liaise with the auditor’s external expert.
• When the auditor’s external expert will complete the work and report findings or conclusions to the auditor.
• The auditor’s external expert’s responsibility to communicate promptly any potential delay in completing the work, and any potential reservation or limitation on that expert’s findings or conclusions.
• The auditor’s external expert’s responsibility to communicate promptly instances in which the entity restricts that expert’s access to records, files, personnel or experts engaged by the entity.
• The auditor’s external expert’s responsibility to communicate to the auditor all information that expert believes may be relevant to the audit, including any changes in circumstances previously communicated.
• The auditor’s external expert’s responsibility to communicate circumstances that may create threats to that expert’s objectivity, and any relevant safeguards that may eliminate or reduce such threats to an acceptable level.

Confidentiality

• The need for the auditor’s expert to observe confidentiality requirements, including:
  • The confidentiality provisions of relevant ethical requirements that apply to the auditor.
  • Additional requirements that may be imposed by law or regulation, if any.
  • Specific confidentiality provisions requested by the entity, if any.