HKSA 620 - Using the Work of an Auditor Expert (Condensed)

Scope and Objectives (Para 1-2, 7)

Scope of HKSA 620

HKSA 620 deals with the auditor's responsibilities when using the work of an individual or organization in a field of expertise other than accounting or auditing to assist in obtaining sufficient appropriate audit evidence.

Key Scope Exclusions

Objectives

1. To determine whether to use the work of an auditor's expert
2. If using, to determine whether that work is adequate for the auditor's purposes

Effective Date

Periods beginning on or after 15 December 2009.

Definitions (Para 3, A1-A3)

Key Terms

Examples of Expertise (Other Than Accounting/Auditing)

• Valuation of complex financial instruments, land and buildings, plant and machinery, jewelry, works of art, antiques, intangible assets
• Actuarial calculation of liabilities (insurance contracts, employee benefit plans)
• Estimation of oil and gas reserves
• Valuation of environmental liabilities and site clean-up costs
• Interpretation of contracts, laws and regulations
• Analysis of complex or unusual tax compliance issues

Individual vs. Organization as Expert

When evaluating an organization, consider both the personal attributes of the individual expert and the managerial attributes of the organization (e.g., quality control systems).

Determining the Need for an Auditor's Expert (Para 7, A4-A9)

Requirement

If expertise in a field other than accounting or auditing is necessary to obtain sufficient appropriate audit evidence, the auditor shall determine whether to use the work of an auditor's expert.

Factors Influencing the Decision

When Management Has Used a Management's Expert

Additional factors to consider:

• Nature, scope and objectives of the management's expert's work
• Whether the expert is employed by or engaged by the entity
• Extent of management's control or influence over the expert's work
• Expert's competence and capabilities
• Whether the expert is subject to technical performance standards
• Any controls within the entity over the expert's work

Alternative: Auditor Without an Expert

An auditor who is not an expert may still obtain sufficient understanding through:

• Experience in auditing entities requiring such expertise
• Education or professional development in the particular field
• Discussion with auditors who have performed similar engagements

Competence, Capabilities, and Objectivity (Para 9, A14-A20)

Requirement

The auditor shall evaluate whether the auditor's expert has the necessary competence, capabilities and objectivity for the auditor's purposes.

Definitions

Sources of Information

• Personal experience with previous work of that expert
• Discussions with that expert
• Discussions with other auditors or others familiar with that expert's work
• Knowledge of qualifications, professional body membership, license to practice
• Published papers or books by that expert
• The auditor's firm's system of quality management

Threats to Objectivity

• Self-interest threats
• Advocacy threats
• Familiarity threats
• Self-review threats
• Intimidation threats

Evaluating Objectivity of External Expert

• Inquire of the entity about any known interests or relationships with the external expert
• Discuss with the expert any applicable safeguards
• Evaluate whether safeguards are adequate to reduce threats to an acceptable level
• Consider obtaining a written representation from the external expert about interests or relationships

Understanding the Field and Agreement with Expert (Para 10-11, A22-A31)

Understanding the Field of Expertise

The auditor shall obtain a sufficient understanding of the field of expertise to:

1. Determine the nature, scope and objectives of that expert's work for the auditor's purposes
2. Evaluate the adequacy of that work for the auditor's purposes

Relevant Aspects of the Expert's Field

• Whether the field has areas of specialty relevant to the audit
• Whether any professional/other standards and regulatory/legal requirements apply
• What assumptions and methods (including models) are used and whether they are generally accepted within the field and appropriate for financial reporting purposes
• The nature of internal and external data or information the expert uses

Agreement with the Auditor's Expert

The auditor shall agree, in writing when appropriate, on the following matters:

Factors Suggesting More Detailed/Written Agreement

• The expert will have access to sensitive or confidential entity information
• Roles/responsibilities differ from those normally expected
• Multi-jurisdictional legal or regulatory requirements apply
• The matter is highly complex
• The auditor has not previously used work performed by that expert
• Greater extent and significance of the expert's work

Working Papers

• Internal expert (engagement team member): Working papers form part of the audit documentation.
• External expert: Working papers are their own and do not form part of the audit documentation (subject to any agreement to the contrary).

Evaluating the Adequacy of the Expert's Work (Para 12-13, A33-A40)

Requirement

The auditor shall evaluate the adequacy of the auditor's expert's work for the auditor's purposes, including:

1. The relevance and reasonableness of that expert's findings or conclusions, and their consistency with other audit evidence
2. If that expert's work involves use of significant assumptions and methods, the relevance and reasonableness of those assumptions and methods in the circumstances
3. If that expert's work involves the use of source data that is significant to that expert's work, the relevance, completeness, and accuracy of that source data

Specific Procedures to Evaluate Adequacy

• Inquiries of the auditor's expert
• Reviewing the auditor's expert's working papers and reports
• Corroborative procedures: observing the expert's work, examining published data, confirming with third parties, performing detailed analytical procedures, reperforming calculations
• Discussion with another expert with relevant expertise
• Discussing the auditor's expert's report with management

Evaluating Assumptions and Methods

Factors for Evaluating Assumptions and Methods

• Whether they are generally accepted within the expert's field
• Whether they are consistent with the applicable financial reporting framework
• Whether they depend on the use of specialized models
• Whether they are consistent with those of management (and if not, the reason for and effects of differences)

Source Data Testing

• Verify the origin of the data
• Obtain an understanding of and test internal controls over the data
• Review the data for completeness and internal consistency
• If the expert has tested the source data: inquiry, supervision or review of those tests may be appropriate

Reference in Auditor's Report and Quality Management (Para 14-15, A11-A13, A41-A42)

Reference to the Auditor's Expert in the Auditor's Report

The Auditor's Firm's System of Quality Management

Additional Considerations for Reference

• Law or regulation may require reference for transparency purposes (e.g., public sector)
• When referring to the expert in a modified opinion, the auditor may need the expert's permission before making such a reference

Appendix: Agreement with External Expert (Appendix, A24-A31)

Considerations for Agreement with an External Expert

The Appendix lists matters the auditor may consider for inclusion in an agreement with an auditor's external expert (often in the form of an engagement letter). The list is illustrative and not exhaustive.

Nature, Scope and Objectives

• Nature and scope of procedures to be performed
• Objectives in the context of materiality and risk considerations
• Any relevant technical performance standards or professional/industry requirements
• Assumptions and methods (including models) to be used and their authority
• Effective date or testing period and requirements regarding subsequent events

Respective Roles and Responsibilities

• Relevant auditing and accounting standards and regulatory/legal requirements
• Expert's consent to auditor's intended use of the report (including reference in modified opinion)
• Nature and extent of auditor's review of the expert's work
• Whether auditor or expert will test source data
• Expert's access to entity's records, files, personnel and experts engaged by the entity
• Procedures for communication between expert and entity
• Access to each other's working papers
• Ownership and control of working papers during and after the engagement
• Expert's responsibility to perform work with due skill and care
• Expert's competence and capability to perform the work
• Expectation that expert will use all relevant knowledge
• Any restriction on expert's association with the auditor's report
• Agreement to inform expert of auditor's conclusions

Communications and Reporting

• Methods and frequency of communications
• How findings/conclusions will be reported (written report, oral report, ongoing input)
• Identification of specific liaison persons within the engagement team
• When the expert will complete the work and report findings
• Expert's responsibility to communicate promptly: potential delays, reservations, restrictions, all relevant information, threats to objectivity and safeguards

Confidentiality

• Confidentiality provisions of relevant ethical requirements applying to the auditor
• Additional requirements imposed by law or regulation
• Specific confidentiality provisions requested by the entity