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CA Intermediate · Auditing and Ethics · Audit Evidence

While auditing Himalaya Steels Ltd, CA Rohan relies on a valuation report from a management's expert, an independent valuer engaged by the company, for freehold land carried at ₹12 crore. Rohan finds the valuer is the brother of the company's managing director. Under SA 500, what should Rohan do?

Rohan should evaluate the expert's competence, capabilities and objectivity. The valuer's family tie to the managing director threatens objectivity, so he should perform further procedures or seek other evidence, such as an independent valuation, before relying on the report; qualification alone does not suffice.

  1. AAccept the report since the valuer is professionally qualified
  2. BEvaluate the competence, capabilities and objectivity of the expert, noting that the relationship threatens objectivity, and perform further procedures or obtain other evidence if neededCorrect
  3. CReject the land balance and modify the opinion immediately
  4. DInclude the valuer's name in the audit report to share responsibility

Explanation

SA 500 requires the auditor to evaluate the competence, capabilities and objectivity of a management's expert, and to consider the work's appropriateness. A family relationship with the MD threatens objectivity, so additional procedures are needed, such as another valuation. Immediate modification is premature, and naming the expert does not reduce the auditor's responsibility.

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