Companies often must rely on special expertise to comply with new accounting standards and disclosure requirements. In areas such as postemployment and postretirement benefits, environmental cleanup obligations, fair value disclosures and derivatives, companies often employ experts or specialists to help them determine appropriate financial statement amounts and disclosures. As such determinations become more complicated and subjective, auditors increasingly will need to use the work of specialists as evidential matter in performing audits in accordance with generally accepted auditing standards.
In recent years, questions have been raised about whether auditors are using the work of specialists appropriately. Some of these questions concerned
* Whether auditors can assess the valuation of certain specialized inventories--pharmaceutical products and high-technology materials, for example--without using specialists.
* Whether, and under what circumstances, auditors can use the work of specialists related to a client.
* The applicability of Statement on Auditing Standards no. 11, Using the Work of a Specialist, to audits of special presentations and to financial statements not prepared according to generally accepted accounting principles.
In response to these and other concerns, SAS no. 73, Using the Work of a Specialist (AICPA Professional Standards, volume 1, AU section 336), was approved by the American Institute of CPAs auditing standards board (ASB) after three years of deliberations. Issued in July 1994, this standard supersedes SAS no. 11 and is effective for audits of financial statements for periods ending on or after December 15, 1994. Early application is encouraged. (For the full text of SAS no. 73, see Official Releases, page 101).
The new standard is not expected to change current practice dramatically for auditors who use specialists' work in audits performed in accordance with GAAS. It does, however,
* Clarify the guidance's applicability.
* Provide updated examples of situations that might require using a specialist's work and the types of specialists used today.
* Provide guidance on what to do when a specialist is related to the client.
WHEN TO APPLY SAS NO. 73
During the ASB's deliberations, concerns were raised that SAS no. 11 did not communicate effectively the types of situations in which auditors would be subject to its provisions. To clarify the matter, the ASB incorporated modified versions of two interpretations of SAS no. 11 into SAS no. 73. The interpretations addressed the standard's applicability when
* Management engages or employs a specialist.
* A specialist employed by the auditor's firm provides advisory services to the client and does not participate in the audit.
SAS no. 73 applies whenever auditors use a specialist's work as evidential matter in performing substantive tests to evaluate material financial statement assertions, regardless of whether management engages or employs the specialist, management engages a specialist employed by the auditor's firm to provide advisory services or the auditor engages the specialist.
The ASB was concerned about inadvertently specifying too many situations in the statement. During the loan origination process, for example, a lending institution might routinely obtain appraisals in support of new loans. If an auditor tests controls over the loan origination process, should the appraisers be considered specialists and SAS no. 73 applied to each loan being tested? The ASB concluded the standard does not apply when an auditor refers to an appraiser's report while performing tests of controls on an institution's loan origination process. It applies, however, if the auditor uses that appraiser's work in connection with substantive tests to evaluate the adequacy of the loan loss reserve.
Examples of specialists an auditor might use in performing financial statement audits are actuaries, appraisers, engineers, environmental consultants and geologists. …