Audit issues and trends to consider:

1. Reliance on expert reports

Audit client management often employs experts to assist with determining values for complex estimates or matters falling outside the expertise of management, e.g. valuations, IFRS review. It is often found that auditors place undue reliance on work performed and reports produced by such experts, without verifying the methods applied and assumptions made by the experts. The results of their work are also not checked carefully when amended, e.g. IFRS reviews on amended draft financial statements.

If information to be used as audit evidence is prepared based on the work of a management’s expert, the auditor must evaluate the appropriateness of the work of the expert as audit evidence for the relevant assertions (ISA 500, paras 8 and A59). This includes verifying the following:

• The relevance and reasonableness of the expert’s findings or conclusions, their consistency with other audit evidence, and whether they have been appropriately reflected in the financial statements
• The relevance and reasonableness of assumptions and methods
• The relevance, completeness and accuracy of significant source data used
• The relevance and reliability of any information used from an external information source.

If the auditor determines that it is necessary to employ an auditor’s expert, similar requirements are included in ISA 620. In certain circumstances, the firm policy may also make the involvement of an expert or additional partner compulsory, such as where going concern problems are encountered.

The bottom line is that the auditor must perform work to verify these aspects, and audit considerations must be documented in a re-performable manner to support the conclusions made in this regard. Where results are amended, the appropriate procedures performed by the expert should include these amendments.

2. Missing the point

In monitoring reviews, it is often found that auditors place significant audit focus on basic areas of the financial statements , for example, verifying bank costs, which often bears very little risk of misstatement. However, significant risk areas, such as complex estimates and areas of fraud risk, do not always receive the appropriate audit attention.

Proper knowledge of the business and the industry, extensive discussions with management, paired with appropriate risk assessment and audit approach development contribute to an excellent audit.

Auditors are reminded that ISA 330, paras 6 and 7, requires that audit procedures must be responsive to the assessed risks of material misstatement. Consider and document the reasons for the scoping and risk assessment at assertion level and evaluate the sufficiency, and appropriateness of evidence for areas with a higher level of risk.