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CA Final · Advanced Auditing, Assurance and Professional Ethics · Audit Planning, Strategy and Execution

CA Nandini is planning the audit of Himalaya Infra Ltd, which holds unquoted derivative instruments measured at fair value using complex models. Her engagement team has no valuation expertise. Midway through fieldwork she confirms that the models drive a significant estimate. Which action best reflects SA 540 and SA 300 requirements?

She should consider the need for specialised skills or knowledge and involve an auditor's expert if required, so the team and expert collectively have appropriate capabilities, competence and time. Excluding derivatives or simply relying on management's expert would not meet SA 540 and SA 300 expectations.

  1. ARely on management's expert alone since management prepared the models
  2. BConsider the need for specialised skills or knowledge, ensuring the engagement team and any auditor's expert collectively have the capabilities, competence and time for the engagementCorrect
  3. CReduce the engagement scope by excluding the derivatives from testing, because the team lacks competence
  4. DDisclaim an opinion immediately, because lack of valuation expertise in the team always makes this necessary

Explanation

SA 540 notes the auditor must ascertain the resources needed, including specialised skills, and the engagement partner must be satisfied the team and any auditor's experts collectively have appropriate capabilities, competence and time. The need can arise during the audit. Option A leaves no auditor evaluation. Option D is premature and not required.

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