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CA Intermediate · Auditing and Ethics · Audit Evidence

Arjun & Associates is auditing Lotus Retail Ltd. A management expert, an independent valuer engaged by the company, has valued certain land at a material amount. The auditor intends to use this valuation report as audit evidence. Which action is consistent with SA 500?

The auditor should evaluate the management expert's competence, capabilities and objectivity, understand the work done, and assess whether it is appropriate audit evidence. Merely being independent of the auditor does not justify full reliance, and the auditor does not cite the expert as the basis of an unmodified opinion.

  1. ARely on the report fully since the valuer is independent of the auditor
  2. BEvaluate the competence, capabilities and objectivity of the expert, understand the expert's work, and evaluate the appropriateness of that work as audit evidenceCorrect
  3. CObtain a second valuation from the audit firm's partner without further evaluation
  4. DRefer to the valuer in the audit report as the basis of the opinion

Explanation

SA 500 requires the auditor, when using the work of a management's expert, to evaluate the expert's competence, capabilities and objectivity, obtain an understanding of the expert's work, and evaluate its appropriateness as evidence. Independence from the auditor does not remove this duty. Referring to the expert in an unmodified report is not appropriate, and a partner's unsupported valuation is no substitute.

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