1. The purpose of this Statement is to provide guidance to the auditor who uses the work of a specialist in performing an examination of financial statements in accordance with generally accepted auditing standards.' For purposes of this Statement, a specialist is a person (or firm) possessing special skill or knowledge in a particular field other than accounting or auditing. Examples of such specialists include actuaries, appraisers, attorneys, engineers, and geologists.2 Decision to Use the Work of a Specialist 2. The auditor's education and experience enable him to be knowledgeable about business matters in general, but he is not expected to have the expertise of a person trained for or qualified to engage in the practice of another profession or occupation. During his examination, however, an auditor may encounter matters potentially material to the fair presentation of financial statements in conformity with generally accepted accounting principles that require special knowledge and that in his judgment require using the work of a specialist. 1 This Statement does not apply to using the work of a specialist who is a member of the auditor's staff, or to the form or content of letters of audit inquiry concerning litigation, claims, or assessments and lawyers' responses thereto. 2 For purposes of this Statement, a person whose special skill or knowledge relates to the internal affairs or business practices of the client, such as a credit or plant manager, is not considered a specialist. Copyright © 1976 by the American Institute of Certified Public Accountants, Inc. 1211 Avenue of the Americas, New York, N.Y. 10036 Statement on Auditing Standards 3. Examples of the types of matters that the auditor may decide require him to consider using the work of a specialist include, but are not limited to, the following: a. Valuation (e.g., works of art, special drugs, and restricted securities). b. Determination of physical characteristics relating to quantity on hand or condition (e.g., mineral reserves or materials stored in piles above ground). c. Determination of amounts derived by using specialized techniques or methods (e.g., certain actuarial determinations). d. Interpretation of technical requirements, regulations, or agreements (e.g., the potential significance of contracts or other legal documents, or legal title to property). 4. In performing an examination of financial statements in accordance with generally accepted auditing standards, the auditor may use the work of a specialist as an audit procedure to obtain competent evidential matter. The circumstances surrounding the use of a specialist differ. Although the familiarity of individual auditors with the work performed by certain types of specialists may differ, the auditing procedures necessary to comply with generally accepted auditing standards need not vary as a result of the extent of the auditor's knowledge. Selecting a Specialist 5. The auditor should satisfy himself concerning the professional qualifications and reputation of the specialist by inquiry or other procedures, as appropriate. The auditor should consider the following: a. The professional certification, license, or other recognition of the competence of the specialist in his field, as appropriate. b. The reputation and standing of the specialist in the views of his peers and others familiar with his capability or performance. c. The relationship, if any, of the specialist to the client. 6. Ordinarily, the auditor should attempt to obtain a specialist who is unrelated to the client. However, when the circumstances so warrant, work of a specialist having a relationship to the client may be Using the Work of a Specialist 3 acceptable (see paragraph 8). Work of a specialist unrelated to the client will usually provide the auditor with greater assurance of reliability because of the absence of a relationship that might impair objectivity. 7. An understanding should exist among the auditor, the client, and the specialist as to the nature of the work to be performed by the specialist. Preferably, the understanding should be documented and should cover the following: a. The objectives and scope of the specialist's work. b. The specialist's representations as to his relationship, if any, to the client. c. The methods or assumptions to be used. d. A comparison of the methods or assumptions to be used with those used in the preceding period. e. The specialist's understanding of the auditor's corroborative use of the specialist's findings in relation to the representations in the financial statements. f. The form and content of the specialist's report that would enable the auditor to make the evaluation described in paragraph 8. Using the Findings of the Specialist 8. Although the appropriateness and reasonableness of methods or assumptions used and their application are the responsibility of the specialist, the auditor should obtain an understanding of the methods or assumptions used by the specialist to determine whether the findings are suitable for corroborating the representations in the financial statements. The auditor should consider whether the specialist's findings support the related representations in the financial statements and make appropriate tests of accounting data provided by the client to the specialist. Ordinarily, the auditor would use the work of the specialist unless his procedures lead him to believe that the findings are unreasonable in the circumstances. If the specialist is related to the client (see paragraph 6), the auditor should consider performing additional procedures with respect to some or all of the related specialist's assumptions, methods, or findings to determine that the findings are not unreasonable or engage an outside specialist for that purpose. 4 Statement on Auditing Standards Effect of the Specialist's Work on the Auditor's Report 9. If the auditor determines that the specialist's findings support the related representations in the financial statements, he may reasonably conclude that he has obtained sufficient competent evidential matter. If there is a material difference between the specialist's findings and the representations in the financial statements, or if the auditor believes that the determinations made by the specialist are unreasonable, he should apply additional procedures. If after applying any additional procedures that might be appropriate he is unable to resolve the matter, the auditor should obtain the opinion of another specialist, unless it appears to the auditor that the matter cannot be resolved. A matter that has not been resolved will ordinarily cause the auditor to conclude that he should qualify his opinion or disclaim an opinion because the inability to obtain sufficient competent evidential matter as to an assertion of material significance in the financial statements constitutes a scope limitation (see SAS No. 2, paragraphs 10 and 11). 10. The auditor may conclude after performing additional procedures, including possibly obtaining the opinion of another specialist, that the representations in the financial statements are not in conformity with generally accepted accounting principles. In that event, he should express a qualified or adverse opinion (see SAS No. 2, paragraphs 15-17). Reference to the Specialist in the Auditor's Report 11. When expressing an unqualified opinion, the auditor should not refer to the work or findings of the specialist. Such a reference in an unqualified opinion might be misunderstood to be a qualification of the auditor's opinion or a division of responsibility, neither of which is intended. Further, there may be an inference that the auditor making such reference performed a more thorough audit than an auditor not making such reference. 12. If the auditor decides to modify his opinion (see paragraphs 9 and 10) 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 an understanding of the reason for the modification. Using the Work of a Specialist The Statement entitled "Using the Work of a Specialist" was adopted unanimously by the twenty-one members of the Committee, of whom three, Messrs. Badecker, Lisk and Nelson, assented with qualifications. Messrs. Badecker and Lisk approve issuance of this Statement but qualify their assent because they disagree with paragraph 11, which prohibits reference to the specialist in the auditor's unqualified report. They believe there may be circumstances when such reference will serve to better inform the reader as to the nature and character of an examination made in accordance with generally accepted auditing standards and the extent of the auditor's responsibility. They believe that the auditor should be held only to a standard of reasonableness and due care in the selection of the specialist and that silence with respect to the work of the specialist and the auditor's reliance on that work may imply the possession of skills by the auditor in an area in which he lacks qualification. Mr. Nelson approves issuance of this Statement but qualifies his assent because he believes that the Statement may necessitate changing arrangements previously made with clients and specialists. Consequently, an effective date should be specified to allow for an orderly implementation of the provisions promulgated in the Statement. Auditing Standards Executive Committee (1974-1975) KENNETH P. JOHNSON, Chairman WILLIAM J. BADECKER J. HERMAN BRASSEAUX ANTHONY P. MANFORTE DAVID A. NELSON HALDON G. ROBINSON DONALD L. SCANTLEBURY JORDAN B. WOLF D. R. CARMICHAEL, Director JOHN F. MULLARKEY, Assistant Note: Statements on Auditing Standards are issued by the Auditing Standards Executive Committee, the senior technical committee of the Institute designated to issue pronouncements on auditing matters. Rule 202 of the Institute's Code of Professional Ethics requires adherence to the applicable generally accepted auditing standards promulgated by the Institute. It recognizes Statements on Auditing Standards as interpretations of generally accepted auditing standards, and requires that members be prepared to justify departures from such Statements. |