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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Audit procedures and obtaining evidence

Orchid Co holds an unquoted equity investment measured at fair value using a valuation model with significant unobservable inputs. Management used an external valuation expert. Which statement is correct under ISA 540 (Revised) and ISA 620?

The auditor must evaluate the management expert's competence, capabilities and objectivity and judge whether their work is appropriate audit evidence. Management's engagement of the expert does not remove this duty, and neither a second valuation nor naming the expert in the report is automatically required.

  1. AThe auditor may take no responsibility for evaluating the expert's work because management engaged the expert
  2. BThe auditor must evaluate the competence, capabilities and objectivity of the management's expert and the appropriateness of their work as audit evidenceCorrect
  3. CThe auditor must disclose the expert's name in the auditor's report in all cases
  4. DThe auditor must obtain a second valuation from an auditor's expert in every case

Explanation

ISA 500 and ISA 620 require the auditor to evaluate the competence, capabilities and objectivity of a management's expert and the appropriateness of their work. Using an expert does not transfer responsibility. A second valuation is only one possible response and not mandatory, and naming experts in the report is not required by default.

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