Definition
A management's specialist is a person or organization with expertise in a field other than accounting or auditing whose work the entity uses to help prepare the financial statements. Common examples are appraisers, actuaries, geologists and engineers. Their work is treated as audit evidence the auditor must evaluate, not as the auditor's own work.
Why it matters in an audit or review
AU-C 500 requires the auditor to evaluate the competence, capabilities and objectivity of the management's specialist, obtain an understanding of the work, and evaluate its appropriateness as audit evidence for the relevant assertion. When estimates rely on the specialist's work, AU-C 540 also requires the auditor to evaluate the methods, assumptions and data. If the work is not adequate, the auditor may use their own specialist or modify the opinion.
Example
Illustrative: a client records a building at appraised fair value using an outside appraiser. The auditor reads the appraiser's report, confirms the appraiser holds a relevant certification and is not related to management, checks that the square footage and rent data in the report match the lease files, and compares the capitalization rate with market surveys. Gaps in the support lead the team to engage its own valuation specialist.
Common mistakes
Filing the appraisal report in the working papers without testing the inputs.
Sources
- AICPA, AU-C Section 500, Audit Evidence (definition of a management’s specialist; evaluating its work)
- AICPA, AU-C Section 540, Auditing Accounting Estimates and Related Disclosures
- AICPA, AU-C Section 620, Using the Work of an Auditor’s Specialist
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error