AUDIT IN

SPECIALIZED
INDUSTRIES
SPECIALIZED
INDUSTRIES
SPECIALIZED INDUSTRIES
• Specialized industry is not necessarily rare or even unusual.
• What makes these industries specialized is that:
a. they are likely either to have specific financial reporting standards applicable to
them; or
b. have distinct accounting policies which have been developed to account for
specialized transactions and balances which are based on the normally-applied
financial reporting standards.

IAS/PAS 41. Agriculture for Agricultural Sector

IFRS 6/PFRS 6. Exploration of Evaluation of Mineral for Mining Sector
Resources
IFRS 9/PFRS 9 and IFRS 7. Financial Instruments for Banking and other
and Financial Instruments: Disclosures Financial Institutions
IFRS 17/PFRS 17. Insurance Contracts for Insurance Companies
EXAMPLES OF SPECIALIZED INDUSTRIES
• Oil, Gas, and other Natural Resources
• Real Estate and Construction
• Producers and Distributors of Films
• Regulated Utilities
• State and Local Gov’t Accounting
• Not-for-Profit Organizations
• Providers of Health Care Services
CHARACTETRISTICS OF
SPECIALIZED INDUSTRIES
• High Risk (Publicly-listed with Public Accountability)
• Strict and several compliance to laws and government agencies and its
regulations
• Complex accounting (revenue recognition)
AUDIT OF COMPANIES UNDER
SPECIALIZED INDUSTRIES
AUDIT CONSIDERATIONS
1. COMPETENCE
- Audit firm
- Audit partner and Audit Team to handle the audit engagement
- Independent Audit Partner
Needed Competence of Audit Firm Personnel
1. Knowledge of relevant industries and;
2. has experience with relevant regulatory or reporting requirements; or
3. the ability to gain the necessary skills and knowledge effectively.

ISQC 1, Quality Control for Firms That Perform Audits and Reviews of Financial
Statements, and Other Assurance and Related Services Engagements
- requires the audit firm to consider whether the firm is competent to perform the
engagement and has the capabilities, including time and resources, to do so.
AUDIT CONSIDERATIONS
1. COMPETENCE

The audit firm should also ensure that there is adequate

documentation to demonstrate that competence has been considered,
and the steps that have been taken to improve competence where
necessary, for example through appropriate staff training.
AUDIT CONSIDERATIONS
2. AUDIT PLANNING
Identification of the risk of material misstatement in a specialized industry
should be approached in the same was as in any other audit – by obtaining
appropriate understanding of the business and its environment.

To assist audit team members assigned to a specialized industry client, the

audit firm is likely to have additional resources available. There may be:
- briefing notes; or
- internal technical guidance on how financial reporting standards should be
applied within the sector.
AUDIT CONSIDERATIONS
2. AUDIT PLANNING

For example, in the audit of banking sector clients, an audit firm may
produce guidance on the specific application of IFRS® Standards relating to
the range of financial instruments typically held by banks. Audit staff can then
refer to this guidance when performing the audit, particularly when
identifying risks of material misstatement.
AUDIT CONSIDERATIONS
2. AUDIT PLANNING

It is also important to remember that while there may be specific risks of

material misstatement relating to the industry-specific balances and
transactions, there must also be appropriate consideration of the “normal”
balances and transactions.

For instance, in the audit of a bank, there will be plenty of risks to consider
other than those relating to bank-specific transactions and balances, for
example the depreciation of properties, recognition of provisions and
impairment of goodwill would all still be relevant. These 'normal' types of risk
must not be forgotten, just because the client operates in a specialised
industry.
AUDIT CONSIDERATIONS
3. RELIANCE ON EXPERTS

The auditor may plan to use an auditor’s expert to obtain audit evidence.

This is quite likely in a specialized industry as despite being competent to

perform the engagement, the audit firm may not have the necessary specific
expertise in some areas.

For instance, in the audit of a bank, specialists may be brought into value
complex financial instruments.
AUDIT CONSIDERATIONS
3. RELIANCE ON EXPERTS
In this situation, the audit firm must adhere to the requirements and
principles of ISA 620, Using the Work of an Auditor’s Expert.

It is particularly IMPORTANT that the auditor evaluates the relevance and

adequacy of the expert’s findings or conclusions.
There is a danger of over-reliance on the expert’s work; the fact that the audit
is of a specialized nature does NOT mean that the auditor can pass all
responsibility over to an expert.
For instance, the auditor must consider whether the expert’s findings are
consistent with the auditor’s understanding of the client and with the
conclusions of other audit procedures. Any inconsistencies must be
investigated.
 SUMMARY OF
AUDIT
CONSIDERATIONS
CONCLUSION
• The audit of a client in a specialized industry can pose some challenges
to the audit firm. However, with proper consideration of competence, and
by providing staff with additional support and guidance, these audits
should not necessarily be more complex or challenging to plan and
perform.
• Using experts can provide high quality audit evidence in specialist
situations, but the auditor must be careful to fully evaluate the findings of
the auditor’s expert and not to over-rely on their work.
• For audit staff, working on this type of engagement can be very
rewarding, providing exposure to sometimes unusual businesses.
END OF
DISCUSSION