AUDIT AND ASSURANCE

SERVICES
AUD4033
ADDITIONAL NOTES _USING THE WORK OF OTHERS
 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.
 USING THE WORK OF OTHERS (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.
 USING THE WORK OF OTHERS (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.
 USING THE WORK OF OTHERS (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.
 USING THE WORK OF OTHERS (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.
 USING THE WORK OF OTHERS (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.
 USING THE WORK OF OTHERS (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
 USING THE WORK OF OTHERS (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;
 USING THE WORK OF OTHERS (CONT.)

(F) THE SOURCES OF INFORMATION TO BE PROVIDED TO THE SPECIALIST;

(G) IDENTIFICATION OF ANY RELATIONSHIP WHICH MAY AFFECT THE
SPECIALIST’S OBJECTIVITY.
 USING THE WORK OF OTHERS (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.
 USING THE WORK OF OTHERS (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.
 USING THE WORK OF OTHERS (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.
 USING THE WORK OF OTHERS (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.
 USING THE WORK OF OTHERS (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.
 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.
 USING THE WORK OF OTHERS (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.
 USING THE WORK OF OTHERS (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.
 USING THE WORK OF OTHERS (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.
 USING THE WORK OF OTHERS (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
 USING THE WORK OF OTHERS (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;
(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
 USING THE WORK OF OTHERS (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.
 USING THE WORK OF OTHERS (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.