Question

Jack Motors manufactures a range of motor cars and its year end is 31st January 2019. You are the audit supervisor of Ayeyi & Partners and are currently preparing the audit programmes for the year-end audit of Jack Motors. You have had a meeting with your audit manager and he has notified you of a number of issues identified during the audit risk assessment process.

Land and buildings

Jack Motors have a policy of revaluing land and buildings, this is undertaken on a rolling basis over a five-year period.

During the year Jack Motors requested an external valuer to revalue a number of properties, including a warehouse purchased in May 2018. Depreciation is charged on a pro rata basis.

Work in progress

Jack Motors undertakes continuous production of cars, 24 hours a day, and seven days a week. An inventory count is to be undertaken at the year end and Ayeyi & Partners will attend. You are responsible for the audit of work in progress (WIP) and will be part of the team attending the count as well as the final audit. WIP constitutes the partly assembled cars at the year end and this balance is likely to be material. Jack Motors values WIP according to percentage of completion, and standard costs are then applied to these percentages.

Required:

i. Explain the factors Ayeyi & Partners should consider when placing reliance on the work of the independent valuer.

Answer 1

The Auditor may have to rely on the work of some expert during the course of audit in the field outside Auditor's core skills.

In general, an expert may be appointed by the auditor or client. In the given question, he was appointed by the client. So the auditor must be more assured before accepting his work.

Expert means a firm of person posessing special skill or knowledge or experience in a particular field other than accounting and auditing.

E.g., Valuation of assets, Percentage of work completed, actuarial valuation etc

Factors to be considered before placing reliance on the work of valuer :

1. Qualification of the expert - Professional certification, membership of a recognised body. E.g., Graduate in Civil engineering, Post graduate in Valuation of land and buildings, Enrolled with Registered Valuer Organisation (RVO)

2. Experience of the expert - His tenure as the expert in the field.

3. Objectivity - He must be independent in performing his duties and not deterred by any means. E.g., Expert is not dictated and controlled by the Client.

4. Appropriate evidence - Auditor must obtain a appropriate evidence that the expert's work is adequate and appropriate. E.g., Enough evidence collected or study conducted before valuing the Land & Building

5. Evaluating the work :

(a) Verifying the source data used

(b) Verifying the assumptions and methods used, with their consistency from previous periods

The above factors must be considered by Ayeyi & Partners before placing reliance on the work of independent valuer.