Using the Work of Specialists in Audits: CPA Exam Guide
Learn how auditors use the work of management specialists and auditor specialists for the CPA AUD exam. Covers AU-C Section 500 and 620, competence evaluation, and reporting.
The Role of Specialists in Auditing
Auditors frequently encounter matters requiring specialized knowledge beyond their expertise, such as actuarial calculations, real estate appraisals, environmental assessments, legal interpretations, or complex IT systems. AU-C Section 620 addresses the auditor's use of the work of an auditor's specialist, while AU-C Section 500 addresses the evaluation of work performed by a management's specialist. Understanding the distinction between these two types of specialists and the auditor's responsibilities regarding each is essential for the CPA AUD exam.
Management's Specialist vs. Auditor's Specialist
Management's Specialist
A management's specialist is an individual or organization possessing expertise in a field other than accounting or auditing, whose work is used by the entity to assist in preparing the financial statements. Examples include actuaries who calculate pension obligations, appraisers who determine fair values of real property, and engineers who estimate environmental remediation liabilities. The work of management's specialist becomes part of the entity's evidence supporting the financial statements.
Auditor's Specialist
An auditor's specialist is an individual or organization possessing expertise in a field other than accounting or auditing, whose work is used by the auditor to assist in obtaining sufficient appropriate audit evidence. An auditor's specialist may be an internal specialist (employed by the firm) or an external specialist (engaged by the firm). The auditor uses a specialist when the auditor needs specialized expertise to evaluate specific assertions or to perform certain audit procedures.
Evaluating the Work of Management's Specialist
Assessing Competence, Capabilities, and Objectivity
Under AU-C Section 500, when management has used a specialist, the auditor must evaluate the competence, capabilities, and objectivity of that specialist. Competence relates to the nature and level of expertise, including professional certification or licensing, membership in professional organizations, and experience in the relevant field. Objectivity relates to the possible effects of bias, conflicts of interest, or undue influence. A specialist who is employed by or has a financial interest in the entity may lack objectivity.
Understanding and Evaluating the Specialist's Work
The auditor obtains an understanding of the specialist's field of expertise, the methods and assumptions used, the data relied upon, and the specialist's findings and conclusions. The auditor evaluates whether the methods and assumptions are reasonable and appropriate, whether the data is complete and accurate, and whether the findings are consistent with other audit evidence. The auditor does not need to have the expertise of the specialist but must have sufficient understanding to evaluate the specialist's work.
Using an Auditor's Specialist
Deciding to Use a Specialist
The auditor determines whether to use a specialist based on the nature and significance of the matter, the risk of material misstatement, and whether other evidence is available. When the auditor uses a specialist, the auditor must agree with the specialist on the nature, scope, and objectives of the work, the respective roles and responsibilities, the nature, timing, and extent of communication, and the need for confidentiality.
Evaluating the Adequacy of the Specialist's Work
The auditor evaluates the adequacy of the specialist's work for the auditor's purposes, including the relevance and reasonableness of the specialist's findings, the relevance and reasonableness of assumptions and methods used, and the consistency of the specialist's findings with other audit evidence. If the specialist's work does not provide sufficient appropriate audit evidence, the auditor must perform additional procedures or engage another specialist.
Impact on the Audit Report
When the auditor issues an unmodified opinion, the auditor's report should not reference the work of a specialist. Reference to a specialist in an unmodified report might be misunderstood as a qualification of the opinion or a division of responsibility. However, if the auditor issues a modified opinion and the specialist's work is relevant to the modification, the auditor may reference the specialist. In such cases, the auditor should indicate that the reference does not reduce the auditor's responsibility for the opinion.
CPA Exam Focus Points
- Distinguish between management's specialist and auditor's specialist. The auditor has different responsibilities for evaluating each type.
- The auditor must evaluate the competence, capabilities, and objectivity of management's specialist, even if the specialist is well-known in their field.
- An unmodified audit opinion should not reference the auditor's use of a specialist.
- The auditor is responsible for the audit opinion. Using a specialist does not reduce the auditor's responsibility for conclusions reached using the specialist's work.
- When the specialist is employed by the audit firm, objectivity considerations are less concerning, but competence and capability must still be evaluated.
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