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CA Intermediate · Auditing and Ethics · Audit Evidence

Vishal & Co., auditors of Sundaram Foods Ltd, rely on a management's expert, a valuer employed by the company, to value a block of unquoted investments at ₹4.8 crore. The valuation is material and the valuer's work is significant. Under SA 500, what is the correct approach?

The auditor must evaluate the management's expert's competence, capabilities and objectivity, understand the expert's work, and evaluate whether it is appropriate audit evidence. Being an employee does not remove the need for this evaluation, and the auditor need not name the valuer in the report.

  1. AAccept the valuation because the valuer is an employee and therefore knowledgeable
  2. BEvaluate the expert's competence, capabilities and objectivity, understand the work, and evaluate its appropriateness as audit evidenceCorrect
  3. CDisclose the valuer's name in the audit report as the source of the figure
  4. DReplace the valuation with the auditor's own estimate without further enquiry

Explanation

SA 500 requires the auditor to evaluate competence, capabilities and objectivity of a management's expert, obtain an understanding of the work, and evaluate its appropriateness as audit evidence. An employee's objectivity is at greater risk, so acceptance without evaluation is wrong. Reference to the expert in the audit report is not required and is not the correct response.

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