Welcome to "Using the Work of Others"!

In the world of Advanced Audit and Assurance (AAA), we often say that an auditor needs to be a "jack of all trades." However, even the best auditors aren't experts in everything. Sometimes, a client has a complex pension scheme, a gold mine, or a high-tech internal audit department that has already done some of the heavy lifting.

In this chapter, we explore how we can use the work of Internal Auditors and Auditor’s Experts to make our audit more efficient and effective. Don't worry if this seems a bit technical at first—we're going to break it down into simple, logical steps!

1. Using the Work of Internal Auditors (ISA 610)

Imagine you are moving into a new house. Before you check every single light switch and pipe, you find out the previous owner already hired a professional inspector last week. You wouldn't ignore that report, right? You’d check if the inspector was reliable and then use their work to save yourself time.

That is exactly what ISA 610 allows us to do with the client's Internal Audit (IA) department.

A. Can we use them? The Three Pillars

Before we touch any work produced by the internal auditors, we must evaluate them. We use three main criteria:

1. Objectivity: Are they independent? If the internal auditor reports to the Finance Director (the person whose work they are checking), they aren't very objective. They should ideally report to those charged with governance (the Audit Committee).
2. Competence: Do they know what they are doing? We check their professional memberships, experience, and training.
3. Systematic and Disciplined Approach: Do they use checklists, document their work, and have quality control? Or are they just scribbling notes on napkins?

B. Two ways to use Internal Audit

There are two distinct ways we can interact with IA:

1. Using work already performed: We look at reports they have already finished during the year (e.g., a report on inventory controls) and use that as part of our evidence.
2. Direct Assistance: We ask the internal auditors to work under our direction and supervision to perform specific audit procedures. Note: This is restricted in some countries, so check the local rules!

C. Important "Red Flags"

We cannot use the internal audit function if:

  • They lack sufficient objectivity.
  • They lack competence.
  • The external auditor has sole responsibility for the audit opinion (this is always true—we can never blame the internal auditor if we get the opinion wrong!).

Quick Review Box:
Always remember: Even if we use IA work, the External Auditor is 100% responsible for the final audit opinion. You can't say "It's not my fault, the internal auditor missed it!"

2. Using the Work of an Auditor’s Expert (ISA 620)

Sometimes, we encounter things that aren't about "debits and credits." For example, how do you value a rare diamond? Or how do you calculate the environmental cleanup cost of an oil spill?

When we need specialized knowledge outside of accounting or auditing, we call in an Auditor’s Expert.

A. Determining the Need

We use an expert when we need sufficient appropriate evidence in a field other than accounting. Common examples include:

  • Valuations: Complex property, jewelry, or antiques.
  • Actuarial calculations: For complex pension liabilities.
  • Legal opinions: Interpreting laws or the outcome of a massive lawsuit.
  • Engineering: Measuring the quantity of minerals in a mine.

B. Evaluating the Expert (The C-C-O Framework)

Just like with internal auditors, we can't just trust anyone. We evaluate their:

1. Competence: Their qualifications and licenses.
2. Capability: Do they have the time and resources to do this job now?
3. Objectivity: Are they related to the client? If the expert is the CEO's brother, we have a problem!

C. Defining the Scope

We must agree on everything in writing with the expert. This includes the nature, scope, and objectives of their work. We need to tell them exactly what we need, and they need to tell us what they will do.

D. Evaluating the Adequacy of their Work

You can't just take the expert's final report and file it away. You must check if their work is actually adequate for your audit. You do this by:

  • Checking if their assumptions are reasonable.
  • Checking if the source data they used is accurate.
  • Ensuring their findings are consistent with other audit evidence you've found.

Analogy Time:
Using an expert is like taking your car to a mechanic. You don't need to know how to fix the engine yourself, but you do need to check if the mechanic is qualified, explain what's wrong with the car, and then check if the car actually drives smoothly after they "fix" it.

3. Key Differences: Internal Auditor vs. Expert

It's easy to mix these up! Here is a simple breakdown:

Internal Auditor: Employees of the client (usually) who check internal controls and processes. They are "insiders."
Auditor’s Expert: A specialist (individual or organization) in a field other than accounting/auditing. They are "specialist outsiders."

4. Memory Aids & Mnemonics

To remember what to check when using an Internal Auditor, remember "O-C-S":

  • Objectivity (Are they biased?)
  • Competence (Are they good at their job?)
  • Systematic Approach (Do they have a plan?)

To remember what to check for an Expert, remember "C-C-O":

  • Competence
  • Capability
  • Objectivity

5. Common Student Mistakes to Avoid

1. Total Reliance: Thinking the external auditor is no longer responsible once they use an expert. Truth: The auditor is always responsible!
2. Confusing Fields: Thinking a tax specialist is an "Auditor’s Expert." Truth: ISA 620 defines an expert as someone in a field OTHER than accounting or auditing. Tax is usually considered part of accounting.
3. Skipping the Evaluation: Assuming that because an Internal Auditor is a "Chartered Accountant," they are automatically objective. Truth: Objectivity is about the reporting lines and threats, not just their title.

Summary Takeaway

- ISA 610: We can use Internal Audit if they are objective, competent, and systematic. We must still supervise and review any work they do for us.
- ISA 620: We use experts for non-accounting fields. We must vet their C-C-O and ensure their work is reasonable and based on accurate data.
- Responsibility: In all cases, the signing auditor carries the full weight of the audit opinion. Others help us get there, but the "buck stops with us!"

Don't worry if this feels like a lot of rules! Just keep asking yourself: "Do I trust this person?" and "Is their work actually helpful for my audit?" If you answer those two questions using the ISA criteria, you'll master this chapter in no time.