## Using the Work of Management's Expert

### Who is a Management's Expert?

An individual or organisation possessing expertise in a field other than accounting or auditing, whose work is used by the entity to assist in preparing the financial statements.

Common examples: actuaries (pension valuations), property valuers (investment property), engineers (oil/gas reserve estimates), legal counsel (litigation provisions).

### Auditor's Three Obligations

When audit evidence has been prepared using a management's expert's work, the auditor must:

1. Evaluate competence, capabilities, and objectivity of the expert

2. Obtain an understanding of the expert's work

3. Evaluate the appropriateness of the expert's work as audit evidence for the relevant assertion

### Factors Determining Nature and Extent of Procedures

Mnemonic: PK T IC N₁N₂A RE

Code	Factor
P	Auditor's previous experience of this expert's work
K	Auditor's knowledge of the expert's field of expertise
T	Whether expert is subject to technical performance standards or professional/industry requirements
I	Extent to which management can influence the expert's work
C	Nature and extent of controls within the entity over the expert's work
N₁	Nature and complexity of the matter to which the expert's work relates
N₂	Nature, scope and objectives of the expert's work
A	Availability of alternative sources of audit evidence
R	Risks of material misstatement in the matter
E	Whether the expert is employed by the entity or externally engaged

> The more significant the expert's work to the auditor's conclusions, and the higher the risk of material misstatement, the more extensive the auditor's procedures must be.

Worked example

### Example 1

An entity uses an actuary to value its defined benefit pension liability at year end. The auditor must: (i) evaluate the actuary's qualifications and independence from management (competence/objectivity), (ii) understand the assumptions used — discount rate, mortality rate, expected salary increases (understanding of work), and (iii) assess whether the resulting figure is appropriate evidence for the Valuation and Allocation assertion on the pension liability.

### Example 2

An entity uses an independent property valuer to fair-value investment property. The auditor has never previously worked with this valuer (P = low experience) and the risk of misstatement is high (R = high). More extensive procedures are therefore needed: the auditor reviews the valuer's methodology, checks professional qualifications, and considers whether management unduly influenced the key assumptions such as capitalisation rate.

### Example 3

An entity has an in-house legal team that estimated a litigation provision. The auditor notes that the legal team is employed by the entity (E = employed). This raises objectivity concerns — the auditor should consider obtaining an external lawyer's confirmation or applying more sceptical review of the assumptions.

⚠️ Common exam mistakes

Assuming the expert's report is automatically sufficient audit evidence — the auditor must still evaluate competence, objectivity, and appropriateness of the work.
Forgetting objectivity as a distinct criterion — an expert employed by or closely connected to management may have reduced independence, even if technically competent.
Confusing Management's Expert with Auditor's Expert (SA 620) — a Management's Expert is engaged by or works for the entity; an Auditor's Expert is engaged by or assists the auditor.
Ignoring the 'controls over expert's work' factor (C) — the existence of entity-level controls over the expert's work affects how much the auditor can rely on it.

Bare-Act text Para 8 – Using the Work of a Management's Expert · SA 500 – Audit Evidence · click to expand

When information to be used as audit evidence has been prepared using the work of a management's expert, the auditor shall, to the extent necessary, having regard to the significance of that expert's work for the auditor's purposes: (a) Evaluate the competence, capabilities and objectivity of that expert; (b) Obtain an understanding of the work of that expert; and (c) Evaluate the appropriateness of that expert's work as audit evidence for the relevant assertion.

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Using the Work of Management's Expert (SA 500)

Worked example

⚠️ Common exam mistakes