Using an Auditor-Engaged Specialist Under PCAOB AS 1210

AS 1210 applies when the audit firm engages an outside specialist (an "auditor-engaged specialist") to help obtain or evaluate evidence about a relevant assertion of a significant account or disclosure. The auditor must assess the specialist's knowledge, skill and ability and objectivity, document a written understanding of the work, and evaluate the report. If the specialist is a firm employee, AS 1201 Appendix C applies instead. If the specialist works for the company, AS 1105 Appendix A applies.

Under US GAAS, the same ground is covered by AU-C 620 for the auditor's specialist and AU-C 501.27 for the management's specialist. Our guides to using the work of a specialist under AU-C 620 and an AU-C 620 valuation example cover that path.

Which standard covers which specialist?

In each standard, a specialist is a person or firm with special skill or knowledge in a field other than accounting or auditing. AS 1210.01 and the other two exclude income taxes and information technology, which the PCAOB treats as specialized areas of accounting and auditing; AS 1201 applies to people with those skills.

AS 2101.16 and .17 sit upstream. The auditor determines whether specialized skill or knowledge is needed, and if a specialist participates, the auditor needs enough knowledge of the subject to communicate the objectives of the work, decide whether the procedures meet those objectives, and evaluate the results.

What must the auditor assess before relying on the specialist?

Knowledge, skill and ability

AS 1210.03 requires the engagement partner, and other team members performing supervisory activities, to assess the specialist's knowledge, skill and ability in the particular field for the type of work. The auditor obtains an understanding of:

• the specialist's professional certification, license or accreditation;
• experience in the type of work, including areas of specialty within the field; and
• the specialist's reputation and standing in the field.

Paragraph .04 is flat: the auditor should not use the work of a specialist who lacks a sufficient level of these.

Objectivity

Paragraph .05 requires the auditor to assess whether the specialist can exercise impartial judgment on all issues in the work. That includes whether the specialist or its employer has a relationship with the company, through employment, financial, ownership or other business relationships, contractual rights, family relationships or otherwise, or has other conflicts of interest relevant to the work.

The evidence needed depends on the significance of the work and the related risk of material misstatement. Sources named in the notes include related party procedures under AS 2410, engagement contracts between the company and the specialist or its employer, questionnaires on relationships, the specialist's written representations, and disclosures in the specialist's report.

The assessment of objectivity drives the extent of the auditor's own work on the data, significant assumptions and methods the specialist is responsible for. Paragraph .11 sets the consequence. If a relationship affects objectivity, the auditor performs additional procedures on that data, assumptions and methods, or engages another specialist. As the degree of objectivity increases, the evidence needed from additional procedures decreases. If the specialist has a low degree of objectivity, the auditor applies the procedures for evaluating a company's specialist.

What goes in the written understanding?

Paragraph .06 requires the engagement team to establish and document an understanding with the specialist about:

1. the specialist's responsibilities and the objectives of the work;
2. the nature of the work, for example testing the company's process for developing an estimate, or developing an independent expectation of the estimate;
3. the degree of the specialist's responsibility for testing data, for evaluating or developing significant assumptions, and for evaluating or using methods; and
4. a report, or equivalent documentation, describing the work performed, the results and the findings or conclusions.

Paragraph .07 requires the team to tell the specialist about matters that could affect the work: the company and its environment, how the company develops the estimate, the company's use of specialists, the framework's requirements and possible accounting and auditing issues. Paragraph .08 requires coordination between the specialist's work and the rest of the engagement team, and ties it to AS 2501 depending on whether the specialist develops an independent expectation (AS 2501.21 to .26), tests the company's process (.09 to .18), or evaluates a company specialist's work (AS 1105 Appendix A and AS 2501.19).

How is the work evaluated?

Paragraph .09 requires the team to review the report and evaluate whether it provides sufficient appropriate evidence, specifically whether the work and report match the understanding, and whether the findings are consistent with the specialist's own results, other evidence and the auditor's understanding of the company. Paragraph .10 sets the extent of review by three factors: the significance of the work to the conclusion, the risk of material misstatement, and the specialist's knowledge, skill and ability.

Paragraph .12 requires additional procedures, or a request for the specialist to do more, if the findings appear to contradict the assertion or the work does not provide sufficient appropriate evidence. The listed examples are work not performed per instructions, restrictions or disclaimers in the report that affect use, findings inconsistent with the specialist's own results or other evidence, no reasonable basis for data or significant assumptions, and inappropriate methods.

Worked example

An issuer's goodwill reporting unit has a carrying amount of $44.5 million. Management's valuation puts fair value at $48.0 million, a headroom of $3.5 million. The audit firm engages an outside valuation specialist to develop an independent range. The specialist reports $43.0 million to $46.5 million.

The range straddles the carrying amount. The specialist's findings do not by themselves support the assertion that the unit passes, so AS 1210.12 requires additional procedures, or a request for more work, to address the difference. The team documents the difference in discount rate and growth assumptions, compares both to market evidence, and records its conclusion. Separately, the team learns that the specialist's firm earns advisory fees from the company's parent. Under paragraph .05 that is a relationship to assess, and under paragraph .11 the team either performs additional procedures on the data, assumptions and methods the specialist developed or engages another specialist.

Does the audit report mention the specialist?

AS 1210 as printed contains no requirement about referring to the specialist in the report. AU-C 620.14 states the US GAAS rule: the auditor should not refer to the work of the auditor's specialist in a report with an unmodified opinion.

How does a company's specialist differ?

AS 1105 Appendix A applies when the specialist is employed or engaged by the company. The auditor obtains an understanding of the specialist's qualifications and assesses knowledge, skill and ability (.A3), assesses whether the company can significantly affect the specialist's judgments (.A4), and evaluates the work by testing company-produced data, evaluating whether significant assumptions are reasonable, and evaluating whether methods are appropriate (.A8). Paragraph .A7 requires more persuasive evidence as the significance of the work, the risk, or the company's ability to influence the specialist increases, or as the specialist's knowledge, skill and ability decrease.

The two regimes differ in what the auditor assesses about independence. For an auditor-engaged specialist the test is whether a relationship affects objectivity. For a company specialist the test is whether the company has the ability to significantly affect the specialist's judgments. For the US GAAS treatment of the management's specialist, see our post on evaluating a management's specialist under AU-C 501.

Sources

• PCAOB, AS 1210, Using the Work of an Auditor-Engaged Specialist (paragraphs .01 to .12): https://pcaobus.org/oversight/standards/auditing-standards/details/AS1210
• PCAOB, AS 1105, Audit Evidence, Appendix A, Using the Work of a Company's Specialist as Audit Evidence, and AS 1201, Supervision of the Audit Engagement, Appendix C, and AS 2101, paragraphs .16 and .17: https://pcaobus.org/oversight/standards/auditing-standards/details/AS1105
• AICPA, AU-C Section 620, Using the Work of an Auditor's Specialist (paragraphs .09 to .15): https://www.aicpa-cima.com/resources/landing/aicpa-professional-standards

CORAA prepares ready-to-review audit files for US CPA firms from client books; you review and sign. See /us.

AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error