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CA Intermediate · Auditing and Ethics · Audit Evidence

The auditor of Bharat Foods Ltd wants to use a report on the company's inventory valuation prepared by an independent valuer engaged by management. Under SA 500, what must the auditor primarily evaluate before using this work as audit evidence?

The auditor must evaluate the competence, capabilities and objectivity of the management's expert and judge whether the expert's work is appropriate as audit evidence. SA 500 requires this evaluation, and the work cannot be accepted blindly simply because management engaged a qualified valuer.

  1. AOnly whether the valuer's fee is reasonable
  2. BThe competence, capabilities and objectivity of the management's expert, and the appropriateness of the expert's work as audit evidenceCorrect
  3. CWhether the valuer is a relative of the auditor's partner
  4. DNothing, as management's expert work is always accepted

Explanation

SA 500 requires the auditor to evaluate the competence, capabilities and objectivity of a management's expert, obtain an understanding of the expert's work and evaluate its appropriateness as audit evidence. Fee reasonableness alone is insufficient, and acceptance without evaluation is not permitted.

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