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In: Accounting

Refer to AU-C 500. The auditor may require expertise that he/she does not possess to evaluate...

Refer to AU-C 500. The auditor may require expertise that he/she does not possess to evaluate certain account balances. The client’s management may have specialists who perform the type of work necessary to determine the account balance. The question is, whether or not the auditor can or should use work performed by management’s specialists. This question is similar to the question about whether the external auditor can use work performed by the client’s internal auditors. It is important to distinguish the terms management’s specialist and auditor’s specialist. The former is addressed in AC-C 500 (which also provides guidance on the external auditor’s use of internal auditors) and the latter in AU-C 620. Select all of the items that describe the external auditor’s considerations with respect to using work performed by client management’s specialists. Check all that apply. a. evaluate the appropriateness of that specialist's work as audit evidence for the relevant assertion b. obtain an understanding of the work of that specialist c. determine the amount of compensation management’s specialist was paid for the work d. obtain audit evidence about the accuracy and completeness of the information e. evaluate whether the information is sufficiently precise and detailed for the auditor's purposes f. issue a separate audit opinion on the work of management’s specialist g. evaluate the competence, capabilities, and objectivity of that specialist

Solutions

Expert Solution

A Specialist is someone who possesses knowledge or skill in a perticular field which is not accounting or auditing. They may be actuaries, engineers, appraisers, etc. An auditor may use work on a specialist hired by the management for following:

  1. Valuation
  2. Determination of Physical Characterstics of a Quantity on hand or condition
  3. Determination of amounts derived using specialised methods or techniques
  4. Interpreation of Agreements, Regulations etc.

While using the work of a specialist, Auditor should take in to consideration the following points

  1. Certification, License or any other recognition which deems the person specialist in the field
  2. Reputation and Standing of the specialist
  3. Experience of work and type of work done

In addition to above, the auditor should gather a further understanding of the following:

  1. Nature of Work undertaken by specialist
  2. Objective of the work done
  3. Relationship of specialist to the client
  4. Methods and/or assumptions used while undertaking the work and comparison of the same with pervious periods
  5. Relevance and Appropriation of Methods used
  6. Form and Content of Specialist's findings

While using the findings, the Auditors should

  1. Evaluate the appropriateness of that specialist's work as audit evidence for the relevant assertion
  2. Obtain an understanding of the work of that specialist
  3. Evaluate whether the information is sufficiently precise and detailed for the auditor's purposes
  4. Evaluate the competence, capabilities, and objectivity of that specialist
  5. Obtain audit evidence about the accuracy and completeness of the information

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