SA 620 – Using the Work of an Auditor's Expert: A Comprehensive Guide

In today's complex business environment, auditors often encounter matters that require specialized knowledge beyond accounting and auditing. Areas such as business valuation, actuarial calculations, environmental liabilities, information technology systems, legal disputes, and complex financial instruments frequently demand expertise that auditors may not possess.

Can specialized expertise be the key to uncovering hidden audit risks?

Great audits are built on collaboration between expertise and judgment, where experts inform decisions and auditors validate them.

To address such situations, SA 620 – Using the Work of an Auditor's Expert provides guidance on how auditors should utilize the work of experts while maintaining overall responsibility for the audit opinion.

What is SA 620?

SA 620 deals with the auditor's responsibilities relating to the work of an individual or organization possessing expertise in a field other than accounting or auditing whose work is used by the auditor to obtain sufficient appropriate audit evidence.

The standard helps auditors determine:

• When expert assistance is necessary.
• How to evaluate an expert's competence.
• How to assess the adequacy of expert work.
• How to use expert findings as audit evidence.

Importantly, even when an expert is involved, the auditor remains solely responsible for the audit opinion.

Objective of SA 620

The objective of the auditor is to determine whether sufficient appropriate audit evidence has been obtained from the work of the auditor's expert.

The auditor must ensure that:

• The expert possesses suitable expertise.
• The work performed is relevant to audit objectives.
• The conclusions reached are reasonable and reliable.
• The findings adequately support audit assertions.

Scope of SA 620

SA 620 applies when the auditor uses the work of:

• An internal expert employed by the audit firm.
• An external expert engaged specifically for the audit.

The standard applies to expertise in fields such as:

Valuation Experts

• Business valuations
• Intangible asset valuations
• Fair value measurements
• Investment property valuations

Actuarial Experts

• Employee benefit obligations
• Pension liabilities
• Insurance reserves

Legal Experts

• Litigation claims
• Regulatory matters
• Contract interpretation

IT Experts

• System audits
• Cybersecurity assessments
• Data analytics

Engineering Experts

• Asset condition assessments
• Environmental obligations
• Technical project evaluations

Understanding an Auditor's Expert

An auditor's expert is an individual or organization possessing expertise in a field other than accounting or auditing.

Examples include:

Area	Expert
Valuation	Registered Valuer
Actuarial Matters	Actuary
Legal Matters	Lawyer
Information Technology	IT Specialist
Environmental Obligations	Environmental Consultant
Engineering Projects	Technical Engineer

Situations Requiring an Auditor's Expert

1. Fair Value Estimation

Complex valuation models often require specialist knowledge.

Example: Valuation of startup shares using the Discounted Cash Flow (DCF) method.

2. Business Combinations

Determining fair value of acquired assets and liabilities.

Example: Valuation of patents acquired during a merger.

3. Investment Properties

Determining market value of commercial real estate assets.

4. Employee Benefits

Calculating gratuity, pension, and post-employment obligations.

5. Environmental Liabilities

Estimating remediation costs for contaminated land.

6. Complex Financial Instruments

Valuation of derivatives, options, and structured products.

7. Litigation and Claims

Assessing legal contingencies and potential obligations.

Key Requirements of SA 620

1. Determining the Need for an Expert

The auditor should assess whether specialized expertise is required.

Factors considered include:

• Complexity of the matter.
• Risk of material misstatement.
• Nature of the industry.
• Availability of expertise within the audit team.

Questions auditors ask:

• Is the matter highly technical?
• Can the audit team evaluate it independently?
• Would expert involvement improve audit evidence?

2. Evaluating Competence, Capabilities, and Objectivity

Competence

Whether the expert possesses sufficient knowledge and qualifications.

• Professional certifications.
• Educational background.
• Industry experience.
• Previous assignments.

Example: A valuation expert may hold Registered Valuer credentials.

Capabilities

Ability to perform the engagement effectively.

• Availability of resources.
• Technical tools.
• Access to required information.

Objectivity

Freedom from bias or conflicts of interest.

• Financial interests in the client.
• Employment relationships.
• Personal relationships.
• Other threats to independence.

Example: An expert holding shares in the audited company may lack objectivity.

3. Obtaining an Understanding of the Expert's Work

The auditor must understand:

• Nature of the expert's assignment.
• Objectives of the work.
• Scope and methodology.
• Assumptions used.
• Reporting framework.

4. Agreement with the Expert

The auditor should establish clear communication regarding:

• Nature of Work – Expected tasks and deliverables.
• Roles and Responsibilities – Responsibilities of both parties.
• Confidentiality Requirements – Protection of client information.
• Reporting Expectations – Timing and format of reports.

Evaluating the Adequacy of Expert Work

Merely engaging an expert is insufficient. The auditor must evaluate whether the expert's work is suitable as audit evidence.

Evaluating Findings and Conclusions

• Conclusions are logical.
• Results are consistent with other evidence.
• Findings address audit objectives.
• Significant matters have been adequately investigated.

Example: If an expert values an asset at ₹100 crore while market evidence suggests ₹70 crore, additional inquiry becomes necessary.

Evaluating Assumptions

The auditor reviews assumptions such as:

• Growth rates.
• Discount rates.
• Inflation rates.
• Mortality rates.
• Market conditions.

Evaluating Methods Used

• Accepted methodologies were applied.
• Industry standards were followed.
• Models are appropriate for the circumstances.

Evaluating Source Data

• Complete.
• Accurate.
• Relevant.
• Reliable.

Auditor's Responsibilities Remain Unchanged

One of the most important principles of SA 620 is:

The auditor cannot transfer responsibility for the audit opinion to the expert.

Even after relying on an expert:

• Audit responsibility remains with the auditor.
• Professional skepticism must be maintained.
• Adequacy of evidence must be independently assessed.

Documentation Requirements under SA 620

The auditor should document:

• Need for expert involvement.
• Evaluation of competence and objectivity.
• Nature and scope of work.
• Assessment of findings.
• Final conclusions.

Proper documentation demonstrates compliance with auditing standards and facilitates quality reviews.

Practical Example of SA 620

Scenario

A listed company owns multiple investment properties valued at ₹500 crore. Management engages a professional valuer to estimate fair value under accounting standards.

The auditor lacks real estate valuation expertise.

Step 1: Need Assessment

Auditor concludes specialist valuation expertise is necessary.

Step 2: Evaluate Expert

• Professional qualifications.
• Experience in commercial real estate.
• Independence from client.

Step 3: Understand Work

• Valuation methodology.
• Market data sources.
• Key assumptions.

Step 4: Evaluate Conclusions

• Comparable market transactions.
• Rental yields.
• Discount rates.
• Consistency with industry trends.

Step 5: Use as Audit Evidence

After satisfactory review, the valuation report becomes part of audit evidence supporting investment property valuation.

Challenges in Using Experts

• Complex technical reports.
• Excessive reliance on expert findings.
• Independence concerns.
• Inadequate documentation.
• Rapidly changing market conditions.

Benefits of SA 620

• Improved Audit Quality – Stronger audit evidence.
• Better Risk Assessment – Identification of complex risks.
• Enhanced Reliability – Accurate evaluation of technical matters.
• Increased Stakeholder Confidence – Greater trust in financial statements.
• Regulatory Compliance – Adherence to professional standards.

SA 620 and Professional Skepticism

Even when experts are highly qualified, auditors must maintain professional skepticism.

• Challenge assumptions.
• Seek corroborative evidence.
• Investigate inconsistencies.
• Evaluate alternative viewpoints.
• Avoid blind reliance on expert reports.

Management's Expert vs Auditor's Expert

Particulars	Management's Expert	Auditor's Expert
Engaged By	Management	Auditor
Purpose	Prepare accounting estimates	Assist audit procedures
Responsibility	Supports management assertions	Supports audit evidence
Independence	May have management relationship	Evaluated by auditor
Reporting	To management	To auditor

Best Practices for Auditors

• Engage experts early in the audit.
• Clearly define expectations.
• Evaluate competence thoroughly.
• Assess objectivity carefully.
• Review assumptions critically.
• Document all evaluations comprehensively.
• Maintain professional skepticism.
• Corroborate expert findings with other audit evidence.

Conclusion

SA 620 – Using the Work of an Auditor's Expert is essential in modern auditing, where financial reporting increasingly involves complex estimates, valuations, technological systems, and specialized judgments.

The standard provides a structured framework for determining when expert assistance is needed and how auditors should evaluate and rely upon that work.

While experts contribute valuable technical knowledge, the auditor retains ultimate responsibility for the audit opinion. By rigorously assessing the expert's competence, objectivity, methodology, assumptions, and conclusions, auditors can obtain sufficient appropriate audit evidence while maintaining the integrity, reliability, and quality of the audit process.

In an era of growing financial complexity, SA 620 serves as a crucial safeguard, ensuring that specialized expertise enhances audit effectiveness without compromising auditor accountability.