Text PAQ 5.35 Using an expert

Required:

(a) Advise Ken Kennedy about the choice of an expert for the audit of Sunny Days. What must he consider when making his choice?

(b) Sunny Days takes over another renewable energy company during the second year of the audit. The new subsidiary is based in another state and has previously been audited by a local audit firm. How should Ken handle the new audit responsibilities brought about by the client’s expansion? Explain.

(a) Ken must consider the requirements of ASA 620 when making his choice of expert. Once it has been decided that the services of an expert are required, the main factors to consider are:

• Scope of the work: The auditor must specify the scope of the work to be carried out by the expert. It is possible that the two experts being considered, as well as any others, would not be interested in completing all the work required. Ken has to consider how to communicate the scope of the work, and whether he could use more than one expert to complete the work required.
• Capability of the expert: What qualifications do Manfred and Lily possess? Are they a member of a relevant professional body (e.g. Institute of Engineers), and what tertiary qualifications do they have in the relevant scientific field? What experience do they have – both appear to have been working in the industry for many years?
• Objectivity of the expert: This appears to be the most contentious point in this case. Fritz is not in favour of using Manfred because he believes that Manfred would have a negative attitude. However, Ken should be cautious about taking Fritz’s advice to employ Lily because it appears that Lily could be too positive towards Fritz. A third choice of expert might resolve the deadlock, although in such a specialised field it is likely that there would be personal relationships or views on reputation of most of the leading experts.

(b) Ken will be guided by ASA 600 (ISA 600) if the local auditor is to continue to audit the new subsidiary. Ken would consider as part of his client continuance decision in the second year whether he can operate with a component auditor or if he should take over the work of the subsidiary himself. Ken needs to consider whether he is able to do or supervise the work involved in the new subsidiary, and whether the local auditor is able to complete the audit work to the necessary standard if they are to continue with the audit of the subsidiary. It is Ken’s responsibility to be satisfied whether the other auditor is able to do the work to the required standard. Ken will consider the other auditor’s capacity and ability, reputation, membership of a professional body, and whether they will take direction from Ken.