HKSA 620 Issued July 2009; revised July 2010 Effective fr audits f financial statements fr perids beginning n r after 15 December 2009 Hng Kng Standard n Auditing 620 Using the Wrk f an Auditr s Expert
COPYRIGHT Cpyright 2009 Hng Kng Institute f Certified Public Accuntants The Hng Kng Standards n Auditing are based n the Internatinal Standards n Auditing f the Internatinal Auditing and Assurance Standards Bard, published by the Internatinal Federatin f Accuntants (IFAC) in April 2009 and are used with permissin f IFAC. This Hng Kng Standard n Auditing cntains IFAC cpyright material. Reprductin within Hng Kng in unaltered frm (retaining this ntice) is permitted fr persnal and nn-cmmercial use subject t the inclusin f an acknwledgment f the surce. Requests and inquiries cncerning reprductin and rights fr cmmercial purpses within Hng Kng shuld be addressed t the Directr, Operatin and Finance, Hng Kng Institute f Certified Public Accuntants, 37/F., Wu Chung Huse, 213 Queen's Rad East, Wanchai, Hng Kng. All rights in this material utside f Hng Kng are reserved by IFAC. Reprductin f Hng Kng Standards n Auditing utside f Hng Kng in unaltered frm (retaining this ntice) is permitted fr persnal and nn-cmmercial use nly. Further infrmatin and requests fr authrisatin t reprduce fr cmmercial purpses utside Hng Kng shuld be addressed t the IFAC at www.ifac.rg. Cpyright 2 HKSA 620
HONG KONG STANDARD ON AUDITING 620 USING THE WORK OF AN AUDITOR S EXPERT (Effective fr audits f financial statements fr perids beginning n r after 15 December 2009) CONTENTS Intrductin Paragraph Scpe f this HKSA... 1-2 The Auditr s Respnsibility fr the Audit Opinin... 3 Effective Date... 4 Objectives... 5 Definitins... 6 Requirements Determining the Need fr an Auditr s Expert... 7 Nature, Timing and Extent f Audit Prcedures... 8 The Cmpetence, Capabilities and Objectivity f the Auditr s Expert... 9 Obtaining an Understanding f the Field f Expertise f the Auditr s Expert... 10 Agreement with the Auditr s Expert... 11 Evaluating the Adequacy f the Auditr s Expert s Wrk... 12-13 Reference t the Auditr s Expert in the Auditr s Reprt... 14-15 Cnfrmity and Cmpliance with Internatinal Standards n Auditing... 16 Applicatin and Other Explanatry Material Definitin f an Auditr s Expert... Determining the Need fr an Auditr s Expert... A1-A3 A4-A9 Nature, Timing and Extent f Audit Prcedures... A10-A13 The Cmpetence, Capabilities and Objectivity f the Auditr s Expert... A14-A20 Obtaining an Understanding f the Field f Expertise f the Auditr s Expert... A21-A22 Agreement with the Auditr s Expert... A23-A31 Evaluating the Adequacy f the Auditr s Expert s Wrk... A32-A40 Reference t the Auditr s Expert in the Auditr s Reprt... A41-A42 Appendix: Cnsideratins fr Agreement between the Auditr and an Auditr s External Expert Hng Kng Standard n Auditing (HKSA) 620, Using the Wrk f an Auditr s Expert shuld be read in cnjunctin with HKSA 200, Overall Objectives f the Independent Auditr and the Cnduct f an Audit in Accrdance with Hng Kng Standards n Auditing. Cpyright 3 HKSA 620
Intrductin Scpe f this HKSA 1. This Hng Kng Standard n Auditing (HKSA) deals with the auditr s respnsibilities relating t the wrk f an individual r rganizatin in a field f expertise ther than accunting r auditing, when that wrk is used t assist the auditr in btaining sufficient apprpriate audit evidence. 2. This HKSA des nt deal with: (a) (b) Situatins where the engagement team includes a member, r cnsults an individual r rganizatin, with expertise in a specialized area f accunting r auditing, which are dealt with in HKSA 220; 1 r The auditr s use f the wrk f an individual r rganizatin pssessing expertise in a field ther than accunting r auditing, whse wrk in that field is used by the entity t assist the entity in preparing the financial statements (a management s expert), which is dealt with in HKSA 500. 2 The Auditr s Respnsibility fr the Audit Opinin 3. The auditr has sle respnsibility fr the audit pinin expressed, and that respnsibility is nt reduced by the auditr s use f the wrk f an auditr s expert. Nnetheless, if the auditr using the wrk f an auditr s expert, having fllwed this HKSA, cncludes that the wrk f that expert is adequate fr the auditr s purpses, the auditr may accept that expert s findings r cnclusins in the expert s field as apprpriate audit evidence. Effective Date 4. This HKSA is effective fr audits f financial statements fr perids beginning n r after 15 December, 2009. Objectives 5. The bjectives f the auditr are: (a) (b) T determine whether t use the wrk f an auditr s expert; and If using the wrk f an auditr s expert, t determine whether that wrk is adequate fr the auditr s purpses. Definitins 6. Fr purpses f the HKSAs, the fllwing terms have the meanings attributed belw: (a) Auditr s expert An individual r rganizatin pssessing expertise in a field ther than accunting r auditing, whse wrk in that field is used by the auditr t assist the auditr in btaining sufficient apprpriate audit evidence. An auditr s expert may be either an 1 2 HKSA 220, Quality Cntrl fr an Audit f Financial Statements, paragraphs A10, A20-A22. HKSA 500, Audit Evidence, paragraphs A34-A48. Cpyright 4 HKSA 620
auditr s internal expert (wh is a partner 3 r staff, including temprary staff, f the auditr s firm r a netwrk firm), r an auditr s external expert. (Ref: Para. A1-A3) (b) (c) Expertise Skills, knwledge and experience in a particular field. Management s expert An individual r rganizatin pssessing expertise in a field ther than accunting r auditing, whse wrk in that field is used by the entity t assist the entity in preparing the financial statements. Requirements Determining the Need fr an Auditr s Expert 7. If expertise in a field ther than accunting r auditing is necessary t btain sufficient apprpriate audit evidence, the auditr shall determine whether t use the wrk f an auditr s expert. (Ref: Para. A4-A9) Nature, Timing and Extent f Audit Prcedures 8. The nature, timing and extent f the auditr s prcedures with respect t the requirements in paragraphs 9-13 f this HKSA will vary depending n the circumstances. In determining the nature, timing and extent f thse prcedures, the auditr shall cnsider matters including: (Ref: Para. A10) (a) (b) (c) (d) (e) The nature f the matter t which that expert s wrk relates; The risks f material misstatement in the matter t which that expert s wrk relates; The significance f that expert s wrk in the cntext f the audit; The auditr s knwledge f and experience with previus wrk perfrmed by that expert; and Whether that expert is subject t the auditr s firm s quality cntrl plicies and prcedures. (Ref: Para. A11-A13) The Cmpetence, Capabilities and Objectivity f the Auditr s Expert 9. The auditr shall evaluate whether the auditr s expert has the necessary cmpetence, capabilities and bjectivity fr the auditr s purpses. In the case f an auditr s external expert, the evaluatin f bjectivity shall include inquiry regarding interests and relatinships that may create a threat t that expert s bjectivity. (Ref: Para. A14-A20) Obtaining an Understanding f the Field f Expertise f the Auditr s Expert 10. The auditr shall btain a sufficient understanding f the field f expertise f the auditr s expert t enable the auditr t: (Ref: Para. A21-A22) (a) (b) Determine the nature, scpe and bjectives f that expert s wrk fr the auditr s purpses; and Evaluate the adequacy f that wrk fr the auditr s purpses. 3 Partner and firm shuld be read as referring t their public sectr equivalents where relevant. Cpyright 5 HKSA 620
Agreement with the Auditr s Expert USING THE WORK OF AN AUDITOR S EXPERT 11. The auditr shall agree, in writing when apprpriate, n the fllwing matters with the auditr s expert: (Ref: Para. A23-A26) (a) The nature, scpe and bjectives f that expert s wrk; (Ref: Para. A27) (b) The respective rles and respnsibilities f the auditr and that expert; (Ref: Para. A28- A29) (c) (d) The nature, timing and extent f cmmunicatin between the auditr and that expert, including the frm f any reprt t be prvided by that expert; and (Ref: Para. A30) The need fr the auditr s expert t bserve cnfidentiality requirements. (Ref: Para. A31) Evaluating the Adequacy f the Auditr s Expert s Wrk 12. The auditr shall evaluate the adequacy f the auditr s expert s wrk fr the auditr s purpses, including: (Ref: Para. A32) (a) (b) (c) The relevance and reasnableness f that expert s findings r cnclusins, and their cnsistency with ther audit evidence; (Ref: Para. A33-A34) If that expert s wrk invlves use f significant assumptins and methds, the relevance and reasnableness f thse assumptins and methds in the circumstances; and (Ref: Para. A35-A37) If that expert s wrk invlves the use f surce data that is significant t that expert s wrk, the relevance, cmpleteness, and accuracy f that surce data. (Ref: Para. A38- A39) 13. If the auditr determines that the wrk f the auditr s expert is nt adequate fr the auditr s purpses, the auditr shall: (Ref: Para. A40) (a) (b) Agree with that expert n the nature and extent f further wrk t be perfrmed by that expert; r Perfrm additinal audit prcedures apprpriate t the circumstances. Reference t the Auditr s Expert in the Auditr s Reprt 14. The auditr shall nt refer t the wrk f an auditr s expert in an auditr s reprt cntaining an unmdified pinin unless required by law r regulatin t d s. If such reference is required by law r regulatin, the auditr shall indicate in the auditr s reprt that the reference des nt reduce the auditr s respnsibility fr the auditr s pinin. (Ref: Para. A41) 15. If the auditr makes reference t the wrk f an auditr s expert in the auditr s reprt because such reference is relevant t an understanding f a mdificatin t the auditr s pinin, the auditr shall indicate in the auditr s reprt that such reference des nt reduce the auditr s respnsibility fr that pinin. (Ref: Para. A42) Cpyright 6 HKSA 620
Cnfrmity and Cmpliance with Internatinal Standards n Auditing 16. As f July 2009 (date f issue), this HKSA cnfrms with Internatinal Standard n Auditing (ISA) 620 Using the Wrk f an Auditr s Expert. Cmpliance with the requirements f this HKSA ensures cmpliance with ISA 620. Applicatin and Other Explanatry Material Definitin f an Auditr s Expert (Ref: Para. 6(a)) *** A1. Expertise in a field ther than accunting r auditing may include expertise in relatin t such matters as: The valuatin f cmplex financial instruments, land and buildings, plant and machinery, jewelry, wrks f art, antiques, intangible assets, assets acquired and liabilities assumed in business cmbinatins and assets that may have been impaired. The actuarial calculatin f liabilities assciated with insurance cntracts r emplyee benefit plans. The estimatin f il and gas reserves. The valuatin f envirnmental liabilities, and site clean-up csts. The interpretatin f cntracts, laws and regulatins. The analysis f cmplex r unusual tax cmpliance issues. A2. In many cases, distinguishing between expertise in accunting r auditing, and expertise in anther field, will be straightfrward, even where this invlves a specialized area f accunting r auditing. Fr example, an individual with expertise in applying methds f accunting fr deferred incme tax can ften be easily distinguished frm an expert in taxatin law. The frmer is nt an expert fr the purpses f this HKSA as this cnstitutes accunting expertise; the latter is an expert fr the purpses f this HKSA as this cnstitutes legal expertise. Similar distinctins may als be able t be made in ther areas, fr example, between expertise in methds f accunting fr financial instruments, and expertise in cmplex mdeling fr the purpse f valuing financial instruments. In sme cases, hwever, particularly thse invlving an emerging area f accunting r auditing expertise, distinguishing between specialized areas f accunting r auditing, and expertise in anther field, will be a matter f prfessinal judgment. Applicable prfessinal rules and standards regarding educatin and cmpetency requirements fr accuntants and auditrs may assist the auditr in exercising that judgment. 4 A3. It is necessary t apply judgment when cnsidering hw the requirements f this HKSA are affected by the fact that an auditr s expert may be either an individual r an rganizatin. Fr example, when evaluating the cmpetence, capabilities and bjectivity f an auditr s expert, it may be that the expert is an rganizatin the auditr has previusly used, but the auditr has n prir experience f the individual expert assigned by the rganizatin fr the particular engagement; r it may be the reverse, that is, the auditr may be familiar with the wrk f an individual expert but nt with the rganizatin that expert has jined. In either case, bth the 4 Fr example, Internatinal Educatin Standard 8, Cmpetence Requirements fr Audit Prfessinals may be f assistance. Cpyright 7 HKSA 620
persnal attributes f the individual and the managerial attributes f the rganizatin (such as systems f quality cntrl the rganizatin implements) may be relevant t the auditr s evaluatin. Determining the Need fr an Auditr s Expert (Ref: Para. 7) A4. An auditr s expert may be needed t assist the auditr in ne r mre f the fllwing: Obtaining an understanding f the entity and its envirnment, including its internal cntrl. Identifying and assessing the risks f material misstatement. Determining and implementing verall respnses t assessed risks at the financial statement level. Designing and perfrming further audit prcedures t respnd t assessed risks at the assertin level, cmprising tests f cntrls r substantive prcedures. Evaluating the sufficiency and apprpriateness f audit evidence btained in frming an pinin n the financial statements. A5. The risks f material misstatement may increase when expertise in a field ther than accunting is needed fr management t prepare the financial statements, fr example, because this may indicate sme cmplexity, r because management may nt pssess knwledge f the field f expertise. If in preparing the financial statements management des nt pssess the necessary expertise, a management s expert may be used in addressing thse risks. Relevant cntrls, including cntrls that relate t the wrk f a management s expert, if any, may als reduce the risks f material misstatement. A6. If the preparatin f the financial statements invlves the use f expertise in a field ther than accunting, the auditr, wh is skilled in accunting and auditing, may nt pssess the necessary expertise t audit thse financial statements. The engagement partner is required t be satisfied that the engagement team, and any auditr s experts wh are nt part f the engagement team, cllectively have the apprpriate cmpetence and capabilities t perfrm the audit engagement. 5 Further, the auditr is required t ascertain the nature, timing and extent f resurces necessary t perfrm the engagement. 6 The auditr s determinatin f whether t use the wrk f an auditr s expert, and if s when and t what extent, assists the auditr in meeting these requirements. As the audit prgresses, r as circumstances change, the auditr may need t revise earlier decisins abut using the wrk f an auditr s expert. A7. An auditr wh is nt an expert in a relevant field ther than accunting r auditing may nevertheless be able t btain a sufficient understanding f that field t perfrm the audit withut an auditr s expert. This understanding may be btained thrugh, fr example: Experience in auditing entities that require such expertise in the preparatin f their financial statements. 5 6 HKSA 220, paragraph 14. HKSA 300, Planning an Audit f Financial Statements, paragraph 8(e). Cpyright 8 HKSA 620
Educatin r prfessinal develpment in the particular field. This may include frmal curses, r discussin with individuals pssessing expertise in the relevant field fr the purpse f enhancing the auditr s wn capacity t deal with matters in that field. Such discussin differs frm cnsultatin with an auditr s expert regarding a specific set f circumstances encuntered n the engagement where that expert is given all the relevant facts that will enable the expert t prvide infrmed advice abut the particular matter. 7 Discussin with auditrs wh have perfrmed similar engagements. A8. In ther cases, hwever, the auditr may determine that it is necessary, r may chse, t use an auditr s expert t assist in btaining sufficient apprpriate audit evidence. Cnsideratins when deciding whether t use an auditr s expert may include: Whether management has used a management s expert in preparing the financial statements (see paragraph A9). The nature and significance f the matter, including its cmplexity. The risks f material misstatement in the matter. The expected nature f prcedures t respnd t identified risks, including the auditr s knwledge f and experience with the wrk f experts in relatin t such matters; and the availability f alternative surces f audit evidence. A9. When management has used a management s expert in preparing the financial statements, the auditr s decisin n whether t use an auditr s expert may als be influenced by such factrs as: The nature, scpe and bjectives f the management s expert s wrk. Whether the management s expert is emplyed by the entity, r is a party engaged by it t prvide relevant services. The extent t which management can exercise cntrl r influence ver the wrk f the management s expert. The management s expert s cmpetence and capabilities. Whether the management s expert is subject t technical perfrmance standards r ther prfessinal r industry requirements Any cntrls within the entity ver the management s expert s wrk. HKSA 500 8 includes requirements and guidance regarding the effect f the cmpetence, capabilities and bjectivity f management s experts n the reliability f audit evidence. 7 8 HKSA 220, paragraph A21. HKSA 500, paragraph 8. Cpyright 9 HKSA 620
Nature, Timing and Extent f Audit Prcedures (Ref: Para. 8) A10. The nature, timing and extent f audit prcedures with respect t the requirements in paragraphs 9-13 f this HKSA will vary depending n the circumstances. Fr example, the fllwing factrs may suggest the need fr different r mre extensive prcedures than wuld therwise be the case: The wrk f the auditr s expert relates t a significant matter that invlves subjective and cmplex judgments. The auditr has nt previusly used the wrk f the auditr s expert, and has n prir knwledge f that expert s cmpetence, capabilities and bjectivity. The auditr s expert is perfrming prcedures that are integral t the audit, rather than being cnsulted t prvide advice n an individual matter. The expert is an auditr s external expert and is nt, therefre, subject t the firm s quality cntrl plicies and prcedures. The Auditr s Firm s Quality Cntrl Plicies and Prcedures (Ref: Para. 8(e)) A11. An auditr s internal expert may be a partner r staff, including temprary staff, f the auditr s firm, and therefre subject t the quality cntrl plicies and prcedures f that firm in accrdance with HKSQC 1 9 r natinal requirements that are at least as demanding. 10 Alternatively, an auditr s internal expert may be a partner r staff, including temprary staff, f a netwrk firm, which may share cmmn quality cntrl plicies and prcedures with the auditr s firm. A12. An auditr s external expert is nt a member f the engagement team and is nt subject t quality cntrl plicies and prcedures in accrdance with HKSQC 1. 11 In sme jurisdictins, hwever, law r regulatin may require that an auditr s external expert be treated as a member f the engagement team, and may therefre be subject t relevant ethical requirements, including thse pertaining t independence, and ther prfessinal requirements, as determined by that law r regulatin. A13. Engagement teams are entitled t rely n the firm s system f quality cntrl, unless infrmatin prvided by the firm r ther parties suggests therwise. 12 The extent f that reliance will vary with the circumstances, and may affect the nature, timing and extent f the auditr s prcedures with respect t such matters as: Cmpetence and capabilities, thrugh recruitment and training prgrams. Objectivity. Auditr s internal experts are subject t relevant ethical requirements, including thse pertaining t independence. 9 10 11 12 HKSQC 1, Quality Cntrl fr Firms that Perfrm Audits and Reviews f Financial Statements, and Other Assurance and Related Services Engagements, paragraph 12(f). HKSA 220, paragraph 2. HKSQC 1, paragraph 12(f). HKSA 220, paragraph 4. Cpyright 10 HKSA 620
The auditr s evaluatin f the adequacy f the auditr s expert s wrk. Fr example, the firm s training prgrams may prvide auditr s internal experts with an apprpriate understanding f the interrelatinship f their expertise with the audit prcess. Reliance n such training and ther firm prcesses, such as prtcls fr scping the wrk f auditr s internal experts, may affect the nature, timing and extent f the auditr s prcedures t evaluate the adequacy f the auditr s expert s wrk. Adherence t regulatry and legal requirements, thrugh mnitring prcesses. Agreement with the auditr s expert. Such reliance des nt reduce the auditr s respnsibility t meet the requirements f this HKSA. The Cmpetence, Capabilities and Objectivity f the Auditr s Expert (Ref: Para. 9) A14. The cmpetence, capabilities and bjectivity f an auditr s expert are factrs that significantly affect whether the wrk f the auditr s expert will be adequate fr the auditr s purpses. Cmpetence relates t the nature and level f expertise f the auditr s expert. Capability relates t the ability f the auditr s expert t exercise that cmpetence in the circumstances f the engagement. Factrs that influence capability may include, fr example, gegraphic lcatin, and the availability f time and resurces. Objectivity relates t the pssible effects that bias, cnflict f interest, r the influence f thers may have n the prfessinal r business judgment f the auditr s expert. A15. Infrmatin regarding the cmpetence, capabilities and bjectivity f an auditr s expert may cme frm a variety f surces, such as: Persnal experience with previus wrk f that expert. Discussins with that expert. Discussins with ther auditrs r thers wh are familiar with that expert s wrk. Knwledge f that expert s qualificatins, membership f a prfessinal bdy r industry assciatin, license t practice, r ther frms f external recgnitin. Published papers r bks written by that expert. The auditr s firm s quality cntrl plicies and prcedures (see paragraphs A11-A13). A16. Matters relevant t evaluating the cmpetence, capabilities and bjectivity f the auditr s expert include whether that expert s wrk is subject t technical perfrmance standards r ther prfessinal r industry requirements, fr example, ethical standards and ther membership requirements f a prfessinal bdy r industry assciatin, accreditatin standards f a licensing bdy, r requirements impsed by law r regulatin. A17. Other matters that may be relevant include: The relevance f the auditr s expert s cmpetence t the matter fr which that expert s wrk will be used, including any areas f specialty within that expert s field. Fr example, a particular actuary may specialize in prperty and casualty insurance, but have limited expertise regarding pensin calculatins. Cpyright 11 HKSA 620
The auditr s expert s cmpetence with respect t relevant accunting and auditing requirements, fr example, knwledge f assumptins and methds, including mdels where applicable, that are cnsistent with the applicable financial reprting framewrk. Whether unexpected events, changes in cnditins, r the audit evidence btained frm the results f audit prcedures indicate that it may be necessary t recnsider the initial evaluatin f the cmpetence, capabilities and bjectivity f the auditr s expert as the audit prgresses. A18. A brad range f circumstances may threaten bjectivity, fr example, self-interest threats, advcacy threats, familiarity threats, self-review threats, and intimidatin threats. Safeguards may eliminate r reduce such threats, and may be created by external structures (fr example, the auditr s expert s prfessin, legislatin r regulatin), r by the auditr s expert s wrk envirnment (fr example, quality cntrl plicies and prcedures). There may als be safeguards specific t the audit engagement. A19. The evaluatin f the significance f threats t bjectivity and f whether there is a need fr safeguards may depend upn the rle f the auditr s expert and the significance f the expert s wrk in the cntext f the audit. There may be sme circumstances in which safeguards cannt reduce threats t an acceptable level, fr example, if a prpsed auditr s expert is an individual wh has played a significant rle in preparing the infrmatin that is being audited, that is, if the auditr s expert is a management s expert. A20. When evaluating the bjectivity f an auditr s external expert, it may be relevant t: (a) (b) Inquire f the entity abut any knwn interests r relatinships that the entity has with the auditr s external expert that may affect that expert s bjectivity. Discuss with that expert any applicable safeguards, including any prfessinal requirements that apply t that expert; and evaluate whether the safeguards are adequate t reduce threats t an acceptable level. Interests and relatinships that may be relevant t discuss with the auditr s expert include: Financial interests. Business and persnal relatinships. Prvisin f ther services by the expert, including by the rganizatin in the case f an external expert that is an rganizatin. In sme cases, it may als be apprpriate fr the auditr t btain a written representatin frm the auditr s external expert abut any interests r relatinships with the entity f which that expert is aware. Obtaining an Understanding f the Field f Expertise f the Auditr s Expert (Ref: Para. 10) A21. The auditr may btain an understanding f the auditr s expert s field f expertise thrugh the means described in paragraph A7, r thrugh discussin with that expert. A22. Aspects f the auditr s expert s field relevant t the auditr s understanding may include: Whether that expert s field has areas f specialty within it that are relevant t the audit (see paragraph A17). Whether any prfessinal r ther standards, and regulatry r legal requirements apply. Cpyright 12 HKSA 620
What assumptins and methds, including mdels where applicable, are used by the auditr s expert, and whether they are generally accepted within that expert s field and apprpriate fr financial reprting purpses. The nature f internal and external data r infrmatin the auditr s expert uses. Agreement with the Auditr s Expert (Ref: Para. 11) A23. The nature, scpe and bjectives f the auditr s expert s wrk may vary cnsiderably with the circumstances, as may the respective rles and respnsibilities f the auditr and the auditr s expert, and the nature, timing and extent f cmmunicatin between the auditr and the auditr s expert. It is therefre required that these matters are agreed between the auditr and the auditr s expert regardless f whether the expert is an auditr s external expert r an auditr s internal expert. A24. The matters nted in paragraph 8 may affect the level f detail and frmality f the agreement between the auditr and the auditr s expert, including whether it is apprpriate that the agreement be in writing. Fr example, the fllwing factrs may suggest the need fr mre a detailed agreement than wuld therwise be the case, r fr the agreement t be set ut in writing: The auditr s expert will have access t sensitive r cnfidential entity infrmatin. The respective rles r respnsibilities f the auditr and the auditr s expert are different frm thse nrmally expected. Multi-jurisdictinal legal r regulatry requirements apply. The matter t which the auditr s expert s wrk relates is highly cmplex. The auditr has nt previusly used wrk perfrmed by that expert. The greater the extent f the auditr s expert s wrk, and its significance in the cntext f the audit. A25. The agreement between the auditr and an auditr s external expert is ften in the frm f an engagement letter. The Appendix lists matters that the auditr may cnsider fr inclusin in such an engagement letter, r in any ther frm f agreement with an auditr s external expert. A26. When there is n written agreement between the auditr and the auditr s expert, evidence f the agreement may be included in, fr example: Planning memranda, r related wrking papers such as the audit prgram. The plicies and prcedures f the auditr s firm. In the case f an auditr s internal expert, the established plicies and prcedures t which that expert is subject may include particular plicies and prcedures in relatin t that expert s wrk. The extent f dcumentatin in the auditr s wrking papers depends n the nature f such plicies and prcedures. Fr example, n dcumentatin may be required in the auditr s wrking papers if the auditr s firm has detailed prtcls cvering the circumstances in which the wrk f such an expert is used. Cpyright 13 HKSA 620
Nature, Scpe and Objectives f Wrk (Ref: Para. 11(a)) A27. It may ften be relevant when agreeing n the nature, scpe and bjectives f the auditr s expert s wrk t include discussin f any relevant technical perfrmance standards r ther prfessinal r industry requirements that the expert will fllw. Respective Rles and Respnsibilities (Ref: Para. 11(b)) A28. Agreement n the respective rles and respnsibilities f the auditr and the auditr s expert may include: Whether the auditr r the auditr s expert will perfrm detailed testing f surce data. Cnsent fr the auditr t discuss the auditr s expert s findings r cnclusins with the entity and thers, and t include details f that expert s findings r cnclusins in the basis fr a mdified pinin in the auditr s reprt, if necessary (see paragraph A42). Any agreement t infrm the auditr s expert f the auditr s cnclusins cncerning that expert s wrk. Wrking Papers A29. Agreement n the respective rles and respnsibilities f the auditr and the auditr s expert may als include agreement abut access t, and retentin f, each ther s wrking papers. When the auditr s expert is a member f the engagement team, that expert s wrking papers frm part f the audit dcumentatin. Subject t any agreement t the cntrary, auditr s external experts wrking papers are their wn and d nt frm part f the audit dcumentatin. Cmmunicatin (Ref: Para. 11(c)) A30. Effective tw-way cmmunicatin facilitates the prper integratin f the nature, timing and extent f the auditr s expert s prcedures with ther wrk n the audit, and apprpriate mdificatin f the auditr s expert s bjectives during the curse f the audit. Fr example, when the wrk f the auditr s expert relates t the auditr s cnclusins regarding a significant risk, bth a frmal written reprt at the cnclusin f that expert s wrk, and ral reprts as the wrk prgresses, may be apprpriate. Identificatin f specific partners r staff wh will liaise with the auditr s expert, and prcedures fr cmmunicatin between that expert and the entity, assists timely and effective cmmunicatin, particularly n larger engagements. Cnfidentiality (Ref: Para. 11(d)) A31. It is necessary fr the cnfidentiality prvisins f relevant ethical requirements that apply t the auditr als t apply t the auditr s expert. Additinal requirements may be impsed by law r regulatin. The entity may als have requested that specific cnfidentiality prvisins be agreed with auditr s external experts. Evaluating the Adequacy f the Auditr s Expert s Wrk (Ref: Para. 12) A32. The auditr s evaluatin f the auditr s expert s cmpetence, capabilities and bjectivity, the auditr s familiarity with the auditr s expert s field f expertise, and the nature f the wrk perfrmed by the auditr s expert affect the nature, timing and extent f audit prcedures t evaluate the adequacy f that expert s wrk fr the auditr s purpses. Cpyright 14 HKSA 620
The Findings and Cnclusins f the Auditr s Expert (Ref: Para. 12(a)) A33. Specific prcedures t evaluate the adequacy f the auditr s expert s wrk fr the auditr s purpses may include: Inquiries f the auditr s expert. Reviewing the auditr s expert s wrking papers and reprts. Crrbrative prcedures, such as: Observing the auditr s expert s wrk; Examining published data, such as statistical reprts frm reputable, authritative surces; Cnfirming relevant matters with third parties; Perfrming detailed analytical prcedures; and Reperfrming calculatins. Discussin with anther expert with relevant expertise when, fr example, the findings r cnclusins f the auditr s expert are nt cnsistent with ther audit evidence. Discussing the auditr s expert s reprt with management. A34. Relevant factrs when evaluating the relevance and reasnableness f the findings r cnclusins f the auditr s expert, whether in a reprt r ther frm, may include whether they are: Presented in a manner that is cnsistent with any standards f the auditr s expert s prfessin r industry; Clearly expressed, including reference t the bjectives agreed with the auditr, the scpe f the wrk perfrmed and standards applied; Based n an apprpriate perid and take int accunt subsequent events, where relevant; Subject t any reservatin, limitatin r restrictin n use, and if s, whether this has implicatins fr the auditr; and Based n apprpriate cnsideratin f errrs r deviatins encuntered by the auditr s expert. Assumptins, Methds and Surce Data Assumptins and Methds (Ref: Para. 12(b)) A35. When the auditr s expert s wrk is t evaluate underlying assumptins and methds, including mdels where applicable, used by management in develping an accunting estimate, the auditr s prcedures are likely t be primarily directed t evaluating whether the auditr s expert has adequately reviewed thse assumptins and methds. When the auditr s expert s wrk is t develp an auditr s pint estimate r an auditr s range fr cmparisn with management s pint estimate, the auditr s prcedures may be primarily Cpyright 15 HKSA 620
directed t evaluating the assumptins and methds, including mdels where apprpriate, used by the auditr s expert. A36. HKSA 540 13 discusses the assumptins and methds used by management in making accunting estimates, including the use in sme cases f highly specialized, entity-develped mdels. Althugh that discussin is written in the cntext f the auditr btaining sufficient apprpriate audit evidence regarding management s assumptins and methds, it may als assist the auditr when evaluating an auditr s expert s assumptins and methds. A37. When an auditr s expert s wrk invlves the use f significant assumptins and methds, factrs relevant t the auditr s evaluatin f thse assumptins and methds include whether they are: Generally accepted within the auditr s expert s field; Cnsistent with the requirements f the applicable financial reprting framewrk; Dependent n the use f specialized mdels; and Cnsistent with thse f management, and if nt, the reasn fr, and effects f, the differences. Surce Data Used by the Auditr s Expert (Ref: Para. 12(c)) A38. When an auditr s expert s wrk invlves the use f surce data that is significant t that expert s wrk, prcedures such as the fllwing may be used t test that data: Verifying the rigin f the data, including btaining an understanding f, and where applicable testing, the internal cntrls ver the data and, where relevant, its transmissin t the expert. Reviewing the data fr cmpleteness and internal cnsistency. A39. In many cases, the auditr may test surce data. Hwever, in ther cases, when the nature f the surce data used by an auditr s expert is highly technical in relatin t the expert s field, that expert may test the surce data. If the auditr s expert has tested the surce data, inquiry f that expert by the auditr, r supervisin r review f that expert s tests may be an apprpriate way fr the auditr t evaluate that data s relevance, cmpleteness, and accuracy. Inadequate Wrk (Ref: Para. 13) A40. If the auditr cncludes that the wrk f the auditr s expert is nt adequate fr the auditr s purpses and the auditr cannt reslve the matter thrugh the additinal audit prcedures required by paragraph 13, which may invlve further wrk being perfrmed by bth the expert and the auditr, r include emplying r engaging anther expert, it may be necessary t express a mdified pinin in the auditr s reprt in accrdance with HKSA 705 because the auditr has nt btained sufficient apprpriate audit evidence. 14 13 14 HKSA 540, Auditing Accunting Estimates, Including Fair Value Accunting Estimates, and Related Disclsures, paragraphs 8, 13 and 15. HKSA 705, Mdificatins t the Opinin in the Independent Auditr s Reprt, paragraph 6(b). Cpyright 16 HKSA 620
Reference t the Auditr s Expert in the Auditr s Reprt (Ref: Para. 14-15) A41. In sme cases, law r regulatin may require a reference t the wrk f an auditr s expert, fr example, fr the purpses f transparency in the public sectr. A42. It may be apprpriate in sme circumstances t refer t the auditr s expert in an auditr s reprt cntaining a mdified pinin, t explain the nature f the mdificatin. In such circumstances, the auditr may need the permissin f the auditr s expert befre making such a reference. Cpyright 17 HKSA 620
Appendix (Ref: Para. A25) Cnsideratins fr Agreement between the Auditr and an Auditr s External Expert This Appendix lists matters that the auditr may cnsider fr inclusin in any agreement with an auditr s external expert. The fllwing list is illustrative and is nt exhaustive; it is intended nly t be a guide that may be used in cnjunctin with the cnsideratins utlined in this HKSA. Whether t include particular matters in the agreement depends n the circumstances f the engagement. The list may als be f assistance in cnsidering the matters t be included in an agreement with an auditr s internal expert. Nature, Scpe and Objectives f the Auditr s External Expert s Wrk The nature and scpe f the prcedures t be perfrmed by the auditr s external expert. The bjectives f the auditr s external expert s wrk in the cntext f materiality and risk cnsideratins cncerning the matter t which the auditr s external expert s wrk relates, and, when relevant, the applicable financial reprting framewrk. Any relevant technical perfrmance standards r ther prfessinal r industry requirements the auditr s external expert will fllw. The assumptins and methds, including mdels where applicable, the auditr s external expert will use, and their authrity. The effective date f, r when applicable the testing perid fr, the subject matter f the auditr s external expert s wrk, and requirements regarding subsequent events. The Respective Rles and Respnsibilities f the Auditr and the Auditr s External Expert Relevant auditing and accunting standards, and relevant regulatry r legal requirements. The auditr s external expert s cnsent t the auditr s intended use f that expert s reprt, including any reference t it, r disclsure f it, t thers, fr example, reference t it in the basis fr a mdified pinin in the auditr s reprt, if necessary, r disclsure f it t management r an audit cmmittee. The nature and extent f the auditr s review f the auditr s external expert s wrk. Whether the auditr r the auditr s external expert will test surce data. The auditr s external expert s access t the entity s recrds, files, persnnel and t experts engaged by the entity. Prcedures fr cmmunicatin between the auditr s external expert and the entity. The auditr s and the auditr s external expert s access t each ther s wrking papers. Ownership and cntrl f wrking papers during and after the engagement, including any file retentin requirements. Cpyright 18 HKSA 620 (July 2010)
The auditr s external expert s respnsibility t perfrm wrk with due skill and care. The auditr s external expert s cmpetence and capability t perfrm the wrk. The expectatin that the auditr s external expert will use all knwledge that expert has that is relevant t the audit r, if nt, will infrm the auditr. Any restrictin n the auditr s external expert s assciatin with the auditr s reprt. Any agreement t infrm the auditr s external expert f the auditr s cnclusins cncerning that expert s wrk Cmmunicatins and Reprting Methds and frequency f cmmunicatins, including: Hw the auditr s external expert s findings r cnclusins will be reprted (fr example, written reprt, ral reprt, nging input t the engagement team). Identificatin f specific persns within the engagement team wh will liaise with the auditr s external expert. When the auditr s external expert will cmplete the wrk and reprt findings r cnclusins t the auditr. The auditr s external expert s respnsibility t cmmunicate prmptly any ptential delay in cmpleting the wrk, and any ptential reservatin r limitatin n that expert s findings r cnclusins. The auditr s external expert s respnsibility t cmmunicate prmptly instances in which the entity restricts that expert s access t recrds, files, persnnel r experts engaged by the entity. The auditr s external expert s respnsibility t cmmunicate t the auditr all infrmatin that expert believes may be relevant t the audit, including any changes in circumstances previusly cmmunicated. The auditr s external expert s respnsibility t cmmunicate circumstances that may create threats t that expert s bjectivity, and any relevant safeguards that may eliminate r reduce such threats t an acceptable level. Cnfidentiality The need fr the auditr s expert t bserve cnfidentiality requirements, including: The cnfidentiality prvisins f relevant ethical requirements that apply t the auditr. Additinal requirements that may be impsed by law r regulatin, if any. Specific cnfidentiality prvisins requested by the entity, if any. Cpyright 19 HKSA 620