In certain audit engagements, auditors rely on the work of experts to evaluate complex matters that fall outside their area of expertise, such as valuations, actuarial calculations, legal interpretations, or technical assessments. While auditors frequently use the work of experts, deciding whether to reference the expert in the auditor’s report requires careful consideration. The International Standard on Auditing (ISA) 620 (Using the Work of an Auditor’s Expert) provides guidance on when and how such references should be made, emphasizing that the auditor retains full responsibility for the audit opinion. This article explores the circumstances under which an auditor may reference an expert in the report, the potential implications of doing so, and best practices for managing such references to ensure clarity, transparency, and compliance with auditing standards.
1. Understanding the Role of the Auditor’s Expert in the Audit Report
The inclusion of an expert’s work in an audit report must be handled carefully to ensure that it aligns with professional standards and does not shift the responsibility for the audit opinion from the auditor to the expert.
A. The Auditor’s Responsibility When Using an Expert
- Ultimate Responsibility for the Audit Opinion: Even when an expert’s work is used, the auditor retains full responsibility for the audit opinion and the conclusions expressed in the auditor’s report.
- Evaluating the Expert’s Work: Before referencing an expert, the auditor must thoroughly evaluate the expert’s work to ensure it provides sufficient and appropriate audit evidence in line with ISA 500 (Audit Evidence).
- Professional Skepticism: The auditor must maintain professional skepticism when reviewing the expert’s findings, critically assessing the assumptions, methodologies, and conclusions used.
B. When Should an Auditor Reference an Expert in the Report?
- To Explain a Modified Opinion: If the expert’s findings result in a modification of the auditor’s opinion (e.g., a qualified opinion, an adverse opinion, or a disclaimer), it may be appropriate to reference the expert to explain the basis for the modification.
- To Highlight a Key Audit Matter: In some cases, the auditor may reference the expert’s work in the Key Audit Matters section of the report to emphasize the significance of the expert’s findings to stakeholders.
- To Provide Transparency: When the expert’s work significantly influences the audit conclusions, referencing the expert can enhance transparency and provide additional context to users of the financial statements.
- Legal or Regulatory Requirements: In certain jurisdictions, legal or regulatory frameworks may require the auditor to disclose the use of an expert in the audit report.
2. Guidelines for Referencing an Auditor’s Expert in the Auditor’s Report
The International Standards on Auditing provide clear guidance on how and when an auditor should reference an expert in the audit report. These guidelines help ensure that such references are appropriate, transparent, and do not undermine the auditor’s responsibility.
A. ISA 620 Guidelines on Referencing an Expert
- No Requirement to Reference Experts in Unmodified Opinions: ISA 620 states that if the auditor’s opinion is unmodified, there is generally no need to reference the expert in the auditor’s report unless it enhances the report’s clarity or is required by law.
- When Referencing is Appropriate: Reference to an expert may be appropriate when the expert’s findings are integral to understanding the basis for a modified opinion or when the expert’s work addresses a Key Audit Matter.
- Maintaining Responsibility: Even when referencing an expert, the auditor should avoid wording that implies the expert shares responsibility for the audit opinion. The auditor remains solely responsible for the conclusions expressed.
B. How to Reference an Expert in the Auditor’s Report
- Describing the Expert’s Role: Clearly describe the expert’s role and area of expertise, such as “valuation specialist” or “actuarial expert,” without giving the impression that the expert is responsible for the audit opinion.
- Providing Context Without Over-Reliance: Ensure that the reference to the expert provides sufficient context to understand the expert’s contribution without suggesting over-reliance on their work.
- Avoiding the Disclosure of Sensitive Information: Be cautious about disclosing sensitive or proprietary information related to the expert’s work, especially if it could compromise confidentiality agreements.
C. Examples of Auditor’s Report References
- Reference in a Key Audit Matter:
- “We engaged an independent valuation specialist to assist in evaluating the fair value of the company’s investment properties due to the complexity of valuation techniques and significant management assumptions involved.”
- Reference in a Modified Opinion:
- “Our opinion is qualified due to a limitation in the scope of our work concerning the valuation of certain financial instruments. We engaged a valuation expert to assess these instruments, but we were unable to obtain sufficient evidence to support management’s estimates.”
- Regulatory Requirement Reference:
- “In accordance with local regulations, we disclose that an external actuarial expert assisted in evaluating the pension obligations disclosed in the financial statements.”
3. Implications of Referencing an Auditor’s Expert in the Report
Referencing an expert in the auditor’s report can have several implications, affecting the perception of the audit, stakeholder confidence, and potential legal liabilities. Auditors must carefully consider these implications before deciding to include such references.
A. Impact on Stakeholder Perceptions
- Enhancing Transparency: Referencing an expert can enhance transparency by providing stakeholders with insights into the complexities of the audit and the areas where specialized knowledge was required.
- Perception of Audit Quality: The use of an expert may be viewed positively, indicating that the auditor sought specialized assistance to ensure accuracy and thoroughness in the audit process.
- Potential Misinterpretation: If not carefully worded, references to experts may lead stakeholders to believe that the expert shares responsibility for the audit opinion or that the auditor lacked the competence to perform the work independently.
B. Legal and Liability Considerations
- Clarifying Responsibility: To avoid legal complications, the auditor must clearly state that the expert’s work supports the audit but does not shift responsibility for the audit opinion.
- Confidentiality and Intellectual Property: Auditors must be cautious about disclosing proprietary information related to the expert’s work, especially if confidentiality agreements are in place.
- Regulatory Compliance: In some jurisdictions, failure to reference an expert when required by law or regulation could lead to legal repercussions or regulatory sanctions.
C. Risk of Over-Reliance on the Expert’s Work
- Maintaining Professional Skepticism: Even when referencing an expert, auditors must ensure they have critically evaluated the expert’s work and maintained professional skepticism throughout the audit process.
- Ensuring Sufficient Evidence: Auditors must not rely solely on the expert’s findings but should obtain corroborative evidence to support their audit conclusions.
4. Best Practices for Referencing an Auditor’s Expert in the Report
To ensure that references to experts in the auditor’s report are appropriate, clear, and compliant with professional standards, auditors should follow best practices for drafting, reviewing, and disclosing such references.
A. Clearly Defining the Expert’s Role in the Audit Report
- Describing the Nature of the Expert’s Work: Clearly describe the expert’s contribution to the audit, specifying the area of expertise and the nature of the work performed.
- Maintaining Responsibility for the Audit Opinion: Use language that makes it clear that the auditor, not the expert, is responsible for the audit opinion and overall conclusions.
B. Ensuring Consistency with Other Audit Evidence
- Corroborating Expert Findings: Ensure that the expert’s findings are consistent with other audit evidence and that any discrepancies are resolved before including a reference in the report.
- Aligning with Key Audit Matters: When referencing an expert in the Key Audit Matters section, ensure that the explanation aligns with the broader context of the audit and highlights the significance of the expert’s work.
C. Managing Legal and Confidentiality Issues
- Consulting Legal Counsel if Necessary: In complex or sensitive cases, consider consulting legal counsel to ensure that the reference to the expert does not create unintended legal liabilities.
- Protecting Confidential Information: Avoid disclosing sensitive or proprietary information related to the expert’s work, especially if confidentiality agreements are in place.
D. Reviewing and Approving the Auditor’s Report
- Internal Review Processes: Subject the audit report, including any references to experts, to thorough internal review processes to ensure clarity, compliance, and appropriateness.
- Obtaining Expert’s Consent if Applicable: In some cases, it may be appropriate to obtain the expert’s consent before referencing their work in the audit report, particularly if disclosure could affect their professional reputation.
5. Balancing Transparency and Responsibility When Referencing an Expert in the Auditor’s Report
Referencing the work of an auditor’s expert in the auditor’s report can enhance transparency, provide valuable context, and improve stakeholder confidence in complex audits. However, it must be done carefully to ensure that the auditor retains full responsibility for the audit opinion and that the reference complies with professional standards. By following the guidelines provided in ISA 620 and adhering to best practices for evaluating, documenting, and referencing expert work, auditors can strike the right balance between transparency and accountability. As the complexity of audits continues to grow, effectively managing references to experts will remain a critical component of delivering high-quality, reliable audit opinions.