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CA Intermediate · Auditing and Ethics · Audit Evidence

An auditor of Rajdhani Steels Ltd is testing the year-end physical inventory count. Management's expert, a valuer engaged by the company, has provided a certificate on the quality and quantity of specialised alloy stock. Which course of action is correct under SA 500 regarding using the work of this management's expert?

The auditor should evaluate the management's expert's competence, capabilities and objectivity, understand the expert's work, and judge whether it is appropriate audit evidence. SA 500 does not permit blind acceptance of a certificate, nor does it require the auditor to redo the whole valuation.

  1. AThe auditor may accept the certificate without evaluation because the expert is professionally qualified
  2. BThe auditor should evaluate the expert's competence, capabilities and objectivity, understand the expert's work, and evaluate its appropriateness as audit evidenceCorrect
  3. CThe auditor must replace the expert's work by performing the entire valuation personally
  4. DThe auditor should disclose the expert's name in the audit report to reduce responsibility

Explanation

SA 500 requires the auditor, when information is prepared using a management's expert's work, to evaluate the expert's competence, capabilities and objectivity, obtain an understanding of the work, and evaluate its appropriateness as evidence. Blind acceptance is not allowed, and doing the whole work personally is not required. Naming the expert does not reduce responsibility.

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