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CA Intermediate · Auditing and Ethics · Audit Evidence

The auditor of Himalaya Foods Ltd uses a management's expert, a valuer engaged by the company, to value a piece of land. The auditor doubts the objectivity of the valuer, who is the brother of the managing director. What is the most appropriate response under SA 500?

The auditor should evaluate the valuer's competence, capabilities and objectivity and, since objectivity is doubtful, perform additional procedures or use an auditor's expert. SA 500 does not allow automatic reliance on management's expert, and a management confirmation alone does not resolve the threat to objectivity.

  1. AAccept the valuation, as an expert's report is always sufficient evidence
  2. BEvaluate the expert's competence, capabilities and objectivity, and if objectivity is threatened, perform additional procedures or use an auditor's expertCorrect
  3. CReduce the audit report to a qualified opinion immediately
  4. DAsk the managing director to confirm the valuer's independence in writing and rely on that alone

Explanation

SA 500 requires the auditor to evaluate the competence, capabilities and objectivity of management's expert. Where objectivity is in doubt, the auditor should perform further procedures or engage an auditor's expert. A management representation alone is not enough, and modification is considered only if sufficient evidence cannot be obtained.

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