A CPA (or CA) firm could not be expected to maintain expertise in every potential industry that it might audit – though, generally speaking, the larger the firm the more this ambition will be attainable. In considering a potential client, the firm should evaluate its ability to gain the necessary industry expertise prior to the actual audit, but no requirement exists that this knowledge must be possessed prior to accepting the engagement.
Each industry may have its own specific accounting practices. In addition, certain industries frequently offer unique auditing problems. Thus, without a thorough investigation, the auditor cannot ascertain the knowledge that will be needed in examining a potential client. In the consumer electronics business, for example, the methods of distribution as well as credit policies would be significantly different from those found in a car dealership. Damaged or obsolete inventory are other problems that might be more important in this specific industry. Hence, knowledge about one type of operation in a broader industry does not necessarily mean that the auditor has the expertise needed to examine a client operating in the same or different industry.
Auditing standards require that auditor have the expertise by the completion of the audit, but this expertise need not be in place at the beginning. It would be wise for an audit firm to recognise the additional resources (time and money) necessary to invest in these circumstances and avoid the temptation to “cut corners”. It would be unethical to misrepresent a firm’s experience, but it need not be volunteered. (You might take a minute to review APES 110, sections 150 and 250 (pre 2018) on this point).