Topic 5 PDF

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USING THE WORK OF

OTHERS
Learning Outcomes
At the end of this chapter, you should be able to:

 Outline the advantages and disadvantages of using
an auditors’ expert and the conditions under which
one may be used.
 Explain the criteria for external auditors to use the
work of internal audit.
FUNDAMENTALS OF AUDITING All Rights Reserved

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Specific Issues In Group Audit
Work of Other Auditors

 When the principal auditor uses the work of another auditor,
the principal auditor should:
(a) Determine how the work of other auditors will affect the
audit;
(b) Consider the professional competence of the other auditors
in the context of the specific assignment;
(c) Perform procedures to obtain sufficient and appropriate
audit evidence that the work of the other auditors is
adequate for the principal auditor’s purposes, in the context
of the specific assignment, and
(d) Consider the significant findings of the other auditors.
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Using The Work Of Others
Work Of An Expert
 ISA 620 -The auditor has sole responsibility for the
opinion expressed and that responsibility is not
reduced by the work of an auditors’ expert.
 If an auditor using the work of an expert concludes
that the work of that expert is adequate for the
auditor’s purposes, then the expert’s findings or
conclusions may be accepted as appropriate audit
evidence.

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(cont.)
 In general, the auditor’s programme of work will

provide them with sufficient, reliable, and relevant
evidence to substantiate their opinion.
 However, there can be circumstances where the
auditors’ knowledge is insufficient and they may
need to rely on experts or specialists to help form
an opinion.

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(cont.)
 ISA 620 defines experts as

– An individual or organization possessing
expertise in a field other than accounting or
auditing, whose work in that field is used by the
auditor to assist in obtaining sufficient and
appropriate audit evidence.
– May be either an auditor’s internal expert (a
partner or staff of the auditor's firm or a network
firm) or an auditor’s external expert.

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(cont.)
 Examples of specialists whose work may be relied

upon include:
(a) Valuers- on the value of non-current assets, complex
financial instruments, works of art, antiques;
(b) Quantity surveyors- on the value of work done on
long-term contracts;
(c) Actuaries- on the liability to be included for pension
scheme liabilities, insurance contracts, and
(d) Geologists, stockbrokers, lawyers etc.

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(cont.)
 An auditor’s expert may be needed to assist auditor in

one or more of the following:
(a) Obtaining an understanding of the entity and its
environment, also internal control;
(b) Identifying and assessing the risk of material
misstatement;
(c) Determining and implementing overall responses to
assessed risk;
(d) Designing and performing further audit procedures, and
(e) Evaluating the sufficiency and appropriateness of the
audit evidence obtained.
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(cont.)
 In deciding whether auditors need specialist

opinions, the following will be considered:
(a) Knowledge and abilities of the audit team, and;
(b) Risks of material misstatements based on the
nature, complexity and materiality of the material
being considered, and
(c) Quantity and quality of other audit evidence which
can be obtained.
 Can be hired either by the auditor or the client
 Either way the client is likely to bear the cost.
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(cont.)
 Auditors should involve experts only when no other

sufficient appropriate evidence is available.
 The following factors may influence auditors to rely
upon or not rely upon the work of a specialist:
(a) Competence of the specialist- technical
qualification, certification and license or
membership of professional bodies;
(b) Experience of the specialist, and
(c) Independence of the specialist

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(cont.)
 If the decision is to rely on the work of a specialist, a

consultation between the auditors, the client and the specialist,
when the specialist is appointed, is important. This is to reach
an agreement on the work to be performed.
 The agreement should cover:
(a) Objectives, scope and subject matter of the specialist’s work;
(b) Assumptions upon which the specialist's report depends and
their compatibility with the accounts;
(c) A statement of the bases used in previous years & any change
to be made;
(d) The use to be made of the specialist's findings;
(e) The form & content of the specialist’s report or opinion;
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(cont.)
(f) The sources of information to be provided to the

specialist;
(g) Identification of any relationship which may affect the
specialist’s objectivity.

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(cont.)
 At the end of the work, auditors will have to review the

expert findings and draw conclusions by looking at:
(a) The source data used;
(b) Assumptions & methods used- consistency with
previous periods;
(c) When was the expert’s work was carried out, and
(d) The overall evaluation of the expert’s work in light of the
auditor's overall knowledge of the business and the
results of other audit procedures which may go towards
corroborating the expert’s opinion.

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(cont.)
 Specific procedures to evaluate the adequacy of

the auditor’s expert’s work:
(a) Making inquiries of the expert
(b) Reviewing their working papers and reports
(c) Corroborative procedures such as observing
their work, examining published data,
confirming relevant matters with third parties,
performing detailed analytical procedures, re-
performing calculations and discussion with
other relevant expertise or the management.
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(cont.)
 Clearly the auditor does not have the same level of

expertise and experience as an expert and hence
an expert’s opinion can be difficult to challenge.
 Auditors have to bear in mind that the expert’s
opinion is the expert’s responsibility, and whether
that work provides sufficient appropriate evidence
for the auditor is the auditor’s responsibility.

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(cont.)
 If auditors are unsatisfied with the expert’s work,

they can opt for the following:
(a) Try again with another expert (however, cost
considerations are important and there is no
guarantee the outcome will be any different);
(b) Discuss the situation with the client and the expert
to see if difficulties can be resolved, and
(c) It may be necessary to modify (qualify) the
auditor's report on the grounds of lack of evidence.

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(cont.)
 Auditors shall not refer to the work of an expert in

the auditor’s report (unmodified opinion) unless it is
required by law (i.e. transparency in the public
sector).
 If the auditor makes references to the work of an
auditor’s expert (with the permission of an expert) in
the auditor’s report (relevant to the understanding
of a modification to auditor’s opinion), the auditor
must indicate that such references do not reduce
the auditor's responsibility for that opinion.

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Using The Work Of Others (cont.)
Work Of Internal Auditors

 It is widely recognized that an effective internal audit
often allows a modification in the nature and timing
and also reduces the extent of audit procedures
performed by the external auditor.
 ISA 610 states:
……external auditor should obtain sufficient
understanding of the internal audit activities to
consider its effect on external audit procedures.

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(cont.)
 Objectives of an external auditor (if an entity has an
internal audit functions) are:
(a) To determine whether the work of the internal audit
function can be used (in which areas and to what extent),
and
(b) To determine whether that work (if in use) is adequate for
purposes of the audit.
 ISA 610 defines internal audit function as the function of an
entity that performs assurance and consulting activities
which are designed to evaluate and improve the
effectiveness of entity’s governance, risk management and
internal control processes.
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(cont.)
 The major consideration for the external auditor is to assess
the competence and objectivity of the internal auditors.
 Among the criteria for assessment are:
(a) Organizational status- to achieve the desired level of
independence, internal auditor should report to the highest
level of management and be free from any operating
responsibility;
(b) Scope of function- nature and extent of functions performed
by internal audit; management’s action and response to the
internal audit recommendations;
(c) Technical competence- adequate training and skills
(d) Due professional care- internal audit work should be properly
planned, reviewed and documented.
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(cont.)
 Materiality of the account balances or class of

transactions and its related audit risk may also
determine how much the external auditor can rely
on the internal auditor’s work.

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(cont.)
 Examples of internal audit functions that can be

used by external auditors:
(a) Testing of the operation effectiveness of controls;
(b) Substantive procedures involving limited
judgement;
(c) Observations of inventory counts;
(d) Tracing transactions through the information
systems relevant to financial reporting, and
(e) Testing compliance with regulatory requirements

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(cont.)
 If the external auditor plans to use the work of the internal

auditors, the external auditor must discuss the planned use
as a basis for coordinating their respective activities.
 Among the procedures external auditors may perform to
evaluate the quality of the work and the conclusions reached
by the internal audit function, in addition to re-performance,
are:
(a) Making inquiries of appropriate individuals within the internal
audit function;
(b) Observing procedures performed by the internal audit
function;

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(cont.)
(c) Reviewing the internal audit’s work programme and

working papers (to evaluate whether the work had been
properly planned, performed, supervised, reviewed and
documented; sufficient and appropriate evidence had been
obtained and appropriate conclusions had been reached).

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(cont.)
 The more judgement involved, the higher the

assessed risks of material misstatements, and the
lower the level of competence and objectivity of the
internal audit function.
 Hence the external auditor will perform more
procedures on the internal audit function to form
an audit opinion.

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(cont.)
 If the external auditor decides to use the work of

internal auditors, the audit documentation shall
include:
(a) Evaluation of the internal audit function’s level of
objectivity, competency and quality control;
(b) Nature and extent of the work used;
(c) Audit procedures performed by the external auditor
to evaluate the adequacy of the work used.


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5

USING THE WORK OF

At the end of this chapter, you should be able to:

FUNDAMENTALS OF AUDITING All Rights Reserved

Specific Issues In Group Audit

Work of Other Auditors

Using The Work Of Others

FUNDAMENTALS OF AUDITING All Rights Reserved

Using The Work Of Others

 In general, the auditor’s programme of work will

FUNDAMENTALS OF AUDITING All Rights Reserved

Using The Work Of Others

 ISA 620 defines experts as

FUNDAMENTALS OF AUDITING All Rights Reserved

Using The Work Of Others

 Examples of specialists whose work may be relied

FUNDAMENTALS OF AUDITING All Rights Reserved

Using The Work Of Others

 An auditor’s expert may be needed to assist auditor in

Using The Work Of Others

 In deciding whether auditors need specialist

Using The Work Of Others

 Auditors should involve experts only when no other

FUNDAMENTALS OF AUDITING All Rights Reserved

Using The Work Of Others

 If the decision is to rely on the work of a specialist, a

Using The Work Of Others

(f) The sources of information to be provided to the

FUNDAMENTALS OF AUDITING All Rights Reserved

Using The Work Of Others

 At the end of the work, auditors will have to review the

FUNDAMENTALS OF AUDITING All Rights Reserved

Using The Work Of Others

 Specific procedures to evaluate the adequacy of

Using The Work Of Others

 Clearly the auditor does not have the same level of

FUNDAMENTALS OF AUDITING All Rights Reserved

Using The Work Of Others

 If auditors are unsatisfied with the expert’s work,

FUNDAMENTALS OF AUDITING All Rights Reserved

Using The Work Of Others

 Auditors shall not refer to the work of an expert in

FUNDAMENTALS OF AUDITING All Rights Reserved

Using The Work Of Others (cont.)

Work Of Internal Auditors

FUNDAMENTALS OF AUDITING All Rights Reserved

Using The Work Of Others

Using The Work Of Others

Using The Work Of Others

 Materiality of the account balances or class of

FUNDAMENTALS OF AUDITING All Rights Reserved

Using The Work Of Others

 Examples of internal audit functions that can be

FUNDAMENTALS OF AUDITING All Rights Reserved

Using The Work Of Others

 If the external auditor plans to use the work of the internal

FUNDAMENTALS OF AUDITING All Rights Reserved

Using The Work Of Others

(c) Reviewing the internal audit’s work programme and

FUNDAMENTALS OF AUDITING All Rights Reserved

Using The Work Of Others

 The more judgement involved, the higher the

FUNDAMENTALS OF AUDITING All Rights Reserved