Using the Work of Audit Specialists (AS 1105, AS 1201, AS 1210)
Audit specialists are used throughout audits these days, but what makes them so special? This post will explore what makes specialists “special” by going through the 5Ws and highlighting the guidance found in the applicable PCAOB auditing standards (AS 1105, AS 1201, AS 1210).
What is a specialist?
Under Public Company Accounting Oversight Board (PCAOB) auditing standards, a specialist is a person (or firm), employed or engaged by the company (or an audit firm), possessing special skill or knowledge in a particular field other than accounting or auditing.
Who uses a specialist?
A specialist may be used by a company to assist in developing accounting estimates and/or a specialist may be used by an auditor as audit evidence. A specialist may be engaged or employed by a company or an audit firm.
When & Where are specialists used?
Goodwill impairments, environmental remediation contingencies, post-employment obligations, and mineral reserves are just a few accounting estimates that could involve the use of a specialist. These accounting estimates are reassessed frequently during the year – many are reassessed each reporting period, which means a specialist could be used quite often!
Why are we talking about specialists?
The use of specialists in audits is becoming even more prevalent as the number and complexity of accounting estimates continue to rise. When a specialist is utilized, by either a company or auditor, the auditor has specific requirements that must be followed per PCAOB auditing standards (U.S. GAAS and ISA have similar requirements, too!).
Auditing accounting estimates consistently ranks in the top 5 audit deficiencies noted during PCAOB inspections, with one of the root causes of the deficiencies being an insufficient understanding and review of work done by specialists.
A specialist is being used; what does this mean for an auditor?
Auditors should refer to the various auditing standards based on the type of specialist used – company’s specialist, auditor employed specialist, or auditor-engaged specialist. The image below is a “cheat-sheet” from our course library that details which PCAOB auditing standard to reference.
Auditors’ responsibilities when using the work of a company’s specialist
When a company’s specialist is used (engaged or employed by the company), the auditor is required to gain an understanding of the specialist’s work, assess the specialist, and evaluate the resulting work performed by the specialist. Specialists are frequently used by companies to aid in developing accounting estimates.
Obtaining an understanding of the specialist’s work includes the data and processes used by the specialist as well as the company’s processes and controls for using the specialist’s work. The specialist’s knowledge, skill, ability, and relationship with the company should be assessed by the auditor. The evaluation of the specialist’s work should include determining if the work provides sufficient appropriate evidence to support the conclusions made by the specialist.
While the auditor is not required to reperform the specialist’s work, the auditor should test and evaluate the data, significant assumptions, and methods used in the work. Relevance and reliability are critical when performing an evaluation of the specialist’s work.
Appendix A – Using the Work of a Company’s Specialist as Audit Evidence of AS 1105: Audit Evidence describes the auditor’s requirements when a company’s specialist is used.
Supervising or using the work of an auditor’s specialist
Even though an audit firm has hired or employed a specialist, that doesn’t mean the auditor is off the hook! Appendix A of AS 1201, Supervision of the Audit Engagement and AS 1210, Using the Work of an Auditor-Engaged Specialist both contain requirements for auditors.
When an auditor-employed specialist is utilized, the supervision requirements in AS 1201 apply, similar to other members of the engagement team, including independence requirements.
When a specialist is engaged by the auditor, the requirements of AS 1210 are to be applied.
Whether the auditor is supervising or using the work of an auditor’s specialist, the auditor’s requirements include:
- Assigning tasks to and determining the independence of an auditor-employed specialist
- Assessing the knowledge, skill, and ability (KSA) of an auditor-engaged specialist
- Assessing the objectivity of an auditor-engaged specialist
- Informing the auditor’s specialist of the work to be performed
- Determining the extent or review of the work of an auditor’s specialist
- Evaluating the work of the auditor’s specialist
Final thoughts
Regardless of the type of specialist utilized, auditors must always assess the knowledge, skill, ability, and objectivity of the specialist. Additionally, the work of the specialist must be reviewed to ensure proper supervision is applied. The level of audit work should be commensurate with the complexity of the accounting estimate. Our course, Using the Work of Specialists, covers these concepts and more!
Want to expand your auditing knowledge even more? Our Audit Update discusses recent changes in the auditing world, including both PCAOB and AICPA standards. Check out the GAAP Dynamics Learning Library to see all the audit courses we offer.ds.
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Disclaimer
This post is for informational purposes only and should not be relied upon as official accounting guidance. While we’ve ensured accuracy as of the publishing date, standards evolve. Please consult a professional for specific advice.