Welcome to Your Guide on Using the Work of Others!
Hello there! As you progress through your HKICPA QP journey, you will quickly realize that an auditor cannot be an expert in everything. Whether it is valuing a complex piece of machinery or checking the internal controls of a massive corporation, sometimes we need to rely on the expertise or effort of others. This chapter, part of the Perform Assurance Engagements section, explains how we can do this while still maintaining our professional standards. Don't worry if this seems like a lot to take in—we will break it down step-by-step!
1. Why Do We Use the Work of Others?
Imagine you are a general doctor. You know a lot about health, but if a patient needs heart surgery, you call in a specialist. Auditing is the same! We are experts in accounting and auditing, but we might not be experts in geology, art valuation, or complex legal cases. Using the work of others helps us gather sufficient appropriate audit evidence in specialized areas.
In this curriculum, we mainly focus on two groups:
1. Auditor's Experts (Specialists in a field other than accounting).
2. Internal Auditors (Employees of the client who monitor their controls).
Quick Review: The Golden Rule
Even if you use someone else's work, you (the external auditor) are solely responsible for the audit opinion. You cannot "blame" an expert if something goes wrong!
2. Using the Work of an Auditor's Expert (HKSA 620)
An Auditor's Expert is a person or organization possessing expertise in a field other than accounting or auditing, whose work is used by the auditor to help obtain evidence.
A. When do we need an expert?
You might need an expert for:
- Valuations (e.g., complex financial instruments, land and buildings, or precious antiques).
- Physical conditions (e.g., measuring the quantity of oil in a reserve or minerals in a mine).
- Legal opinions (e.g., interpreting a complex lawsuit or contract).
B. How to pick and evaluate an expert
Before you rely on them, you must check their C.C.O. (a handy mnemonic!):
- Competence: Do they have the right qualifications and memberships? (e.g., Are they a member of a professional body?)
- Capability: Do they have the time and resources to do the job?
- Objectivity: Are they independent of the client? (If they are the CEO's brother, that is a red flag!)
C. Agreeing on the Work
You must have a written agreement with the expert. Think of this like a contract that covers:
- The nature, scope, and objectives of their work.
- The roles and responsibilities of both the auditor and the expert.
- The confidentiality requirements.
D. Evaluating their findings
You can't just take their report and file it away. You must check if their work is adequate. Ask yourself:
- Are their findings consistent with other audit evidence?
- Did they use reasonable assumptions and methods? (e.g., If they valued a building, did they use current market rates?)
- Was the source data they used accurate?
Key Takeaway
Check their credentials, tell them exactly what to do, and double-check their results for "reasonableness."
3. Using the Work of Internal Auditors (HKSA 610)
Internal auditors (IA) are employees of the company you are auditing. They are already there, checking controls and processes. Using their work can make your audit more efficient, but you must be careful because they aren't fully independent (they work for the client!).
A. Two ways to use Internal Auditors
1. Using their existing work: You look at reports they have already written during the year.
2. Direct assistance: You ask them to perform specific audit procedures under your supervision.
B. Can we use them? (The Assessment)
Before using the IA function, you must evaluate:
- Objectivity: Who do they report to? If they report to the Finance Director (whose work they are checking), they aren't very objective. They should ideally report to the Audit Committee.
- Competence: Are they trained, or are they just interns?
- Systematic and Disciplined Approach: Do they have a manual? Do they document their work properly?
C. When NOT to use them
You should not use IA for:
- Areas with a high risk of material misstatement.
- Areas that require significant judgment (like complex accounting estimates).
- Work they have already been involved in (self-review threat).
D. Direct Assistance - Extra Rules
If you use IA staff for direct assistance, you must:
- Get written agreement from the client that the IA staff will follow your instructions.
- Get written agreement from the IA staff that they will keep matters confidential.
- Supervise, review, and test their work yourself.
Did you know?
In some jurisdictions, using internal auditors for "direct assistance" is actually prohibited by law! Always check the specific local regulations, though HKSA 610 allows it under strict conditions.
4. Common Mistakes to Avoid
Mistake 1: Blind Trust. Never assume the expert or internal auditor is 100% correct. Always maintain professional skepticism.
Mistake 2: Referring to the Expert in the Audit Report. Generally, you do not mention the expert in an unmodified audit report. It might make people think you are sharing responsibility. You only mention them if required by law or to explain a modified opinion.
5. Summary Checklist for Students
Before you move on to the next chapter, make sure you can answer these:
1. Who is responsible for the audit opinion? (Always the external auditor).
2. What are the three things to check for an expert? (Competence, Capability, Objectivity).
3. What is the best reporting line for an internal audit team to ensure objectivity? (To the Audit Committee/Those Charged with Governance).
4. Can I use internal auditors to audit the CEO's bonus calculation? (Probably not—the risk and judgment are too high, and objectivity might be low).
You're doing great! This chapter is all about balancing efficiency (using others' help) with quality (checking their work). Keep this balance in mind, and you'll master this topic in no time!