II. Planning Activities - Using the Work of a Specialist

Question 1

Under which of the following circumstances would an auditor be considered to be using the work of a specialist?

Answer 1

The auditor engages a lawyer to interpret the provisions of a complex contract.

Note: That a specialist as someone having specialized expertise outside of accounting and auditing whom the auditor uses, in effect, as a member of the audit team. Professional Standards include the interpretation of contracts, laws, and regulations as an example of such specialized expertise.

Question 2

An auditor intends to use the work of an actuary who has a relationship with the client. Under these circumstances, the auditor

Answer 2

Should assess the risk that the actuary’s objectivity might be impaired.

Note: Impairment might occur when the client has the ability to directly, or indirectly, control or significantly influence the actuary.

Question 3

Which of the following statements is correct concerning an auditor’s use of the work of an actuary in assessing a client’s pension obligations?

Answer 3

The auditor is required to understand the objectives and scope of the actuary’s work.

Note: When using a specialist, in general, the auditor is obligated to obtain an understanding of the work to be performed by the specialist, including the nature, objectives, and scope of the specialist’s work.

Question 4

***An auditor who uses the work of a specialist may refer to the specialist in the auditor’s report if the

Answer 4

Auditor modifies the report because of the difference between the client’s and the specialist’s valuations of an asset.

Why? AICPA Professional Standards indicate that reference to the work of a specialist may be made in the auditor’s report if the auditor believes such reference will facilitate an understanding of the reason for a modified opinion.

Question 5

Which of the following statements concerning the auditor’s use of the work of a specialist is correct?

Answer 5

• Issuing a qualified opinion based solely on the unreasonableness of the specialist’s findings would not be appropriate.
• specialist is not required to be independent. (so they can still be related to the auditor client and still participate) The auditor, however, must evaluate the nature of the relationship of the specialist to the client and assess the specialist’s ability to be objective.
• The specialist should also understand how the auditor plans to use the specialist’s findings.
• auditor may only refer to the specialist in the report when, as a result of the specialist’s findings, the auditor expresses a modified opinion in the auditor’s report.The work of a specialist who is related to the client may be acceptable under certain circumstances.
• The work of a specialist who is related to the client may be acceptable under certain circumstances.

Question 6

When using the work of a specialist, an auditor may refer to and identify the specialist in the auditor’s report if the

Answer 6

Auditor expresses a qualified opinion as a result of the specialist’s findings.

Note: The auditor may refer to (and, with the specialist’s permission, identify) the specialist in the report, if the opinion is modified as a result of the specialist’s findings, and the auditor believes that such a reference will be helpful to readers in understanding the reason(s) for the modification.

Question 7

May a CPA hire - for the CPA’s public accounting firm - a non-CPA systems analyst who specializes in developing computer systems?

Answer 7

Yes, provided the CPA is able to supervise the specialist and evaluate the specialist’s end product.

Note: The CPA should be able to define the tasks to be performed and evaluate the end product.

Question 8

In using the work of a specialist, an auditor referred to the specialist’s findings in the auditor’s report. This would be an appropriate reporting practice if the

Answer 8

Auditor, as a result of the specialist’s findings, modifies the auditor’s opinion on the entity’s financial statements.

Note: The auditor may refer to the specialist’s findings in the audit report if, as a result of the specialist’s findings, the auditor modifies the opinion on the entity’s financial statements.

Question 9

When the auditor uses the work of a specialist, what should the auditor do?

Answer 9

The auditor should obtain an understanding of the methods and assumptions used by the specialist.

Note:

• The auditor should obtain an understanding of the specialist’s field of expertise sufficient to enable determination of the nature, objectives, and scope of the specialist’s work and evaluation of the adequacy of that work.
  
  • ​​This includes obtaining an understanding of the significant assumptions and methods used by the specialist.

Question 10

In using the work of a specialist, an auditor may refer to the specialist in the auditor’s report if, as a result of the specialist’s findings, the auditor

Answer 10

Adds an emphasis-of-matter paragraph to the auditor’s report to emphasize an unusually important subsequent event.

Remember:

• specialist is only referred to when that report directly relates to a matter resulting in modification of the report—here an important subsequent event. It might also involve a case in which a specialist’s valuation differs from management’s valuation.
• Auditor, as a result of the specialist’s findings, adds an explanatory paragraph emphasizing a matter regarding the financial statements.

Question 11

Professional standards require documentation of an understanding

Answer 11

• require documentation of the specialist’s objectives and scope.
• the relationship of the specialist (if any) to the client.
• an understanding of the auditor’s use of the specialist’s findings.

Question 12

What are some examples of a specialist?

Answer 12

Actuary.

Appraiser.

Engineer.

Note: internal auditor are not considered a specialist under the professional standards.

Question 13

Least likely to include a reference to the use of a specialist

Answer 13

Unmodified opinion:

When issuing an unmodified opinion, the auditor should not refer to the work or findings of the specialist. When an auditor decides to modify the audit opinion as a result of the report or findings of the specialist, reference to and identification of the specialist may be made in the auditor’s report if the auditor believes such reference will facilitate understanding.

Question 14

When an outside specialist has assumed full responsibility for taking the client’s physical inventory, reliance on the specialist’s report is acceptable if

Answer 14

The auditor conducted the same audit tests and procedures as would have been applicable if the client employees took the physical inventory.

Why?

when a CPA has conducted the same tests as s/he would have if client employees had taken the inventory, sufficient evidence will normally have been collected. In fact, in many such circumstances the CPA may reduce the extent of his/her work.

Question 15

What are some types of instances would an auditor be least likely to require the assistance of a specialist?

Answer 15

• Assessing the valuation of inventories of artworks.
• Determining the quantities of materials stored in piles on the ground.
• Determining the value of unlisted securities.
• Ascertaining the assessed valuation of historical cost of fixed assets.

Question 16

In using the work of a specialist, an auditor may refer to the specialist in the auditor’s report if, as a result of the specialist’s findings, the auditor

Answer 16

The auditor may refer to the specialist when the specialist’s findings result in a modification of the audit report and reference to the external specialist helps explain the nature of the modification of the audit report.