Page 115 - CA Final PARAM Digital Book.

PDJ Ltd. has engaged an actuary to ascertain actuarial valuation of defined benefit obligations viz. Gratuity
and Leave Encashment liabilities. As an auditor of PDJ Ltd. you would like to use the report of the actuary
as audit evidence. How would you evaluate the work of the actuary?
Answer Part I -- Relevant Standards & Laws
▪ SA 500 “Audit Evidence”

Part II -- Requirements of Relevant Standards & Laws
➢ Three Steps before relying on Management’s Expert: -
• Evaluate Competence, Capabilities, Objectivity/ Understand field of Expert/
Evaluate appropriateness of Work.
The auditor shall, to the extent necessary, having regard to the significance of that expert’s
work for the auditor’s purposes.
• Evaluate the competence, capabilities and objectivity of that expert.
• Obtain an understanding of the work of that expert; and
• Evaluate the appropriateness of that expert’s work as audit evidence for the
relevant assertion.

➢ Competence, Capabilities and Objectivity– Obtain information from sources / qualification,
published papers & books, previous work with expert, discussion with expert, discussion with
other who are familiar with expert.
The auditor may obtain information regarding the competence, capabilities and objectivity of a
management’s expert from a variety of sources, such as
• knowledge of that expert’s qualifications;
• published papers or books written by that expert.
• personal experience with previous work of that expert;
• discussions with that expert;
• discussions with others who are familiar with that expert’s work;

➢ Understanding Work of Expert: - Understand aspects of expert’s field including assumption
and methods.
Aspects of the management’s expert’s field relevant to the auditor’s understanding may include
what assumptions and methods are used by the management’s expert, and whether they are
generally accepted within that expert’s field and appropriate for financial reporting purposes.

➢ Evaluating Work of Expert: -
The auditor may also consider the following while evaluating the appropriateness of the
management’s expert’s work as audit evidence for the relevant assertion:
• If that expert’s work involves significant use of source data, the relevance, completeness,
and accuracy of that source data.
• If that expert’s work involves use of significant assumptions and methods, the relevance
and reasonableness of those assumptions and methods; and
• The relevance and reasonableness of that expert’s findings or conclusions, their
consistency with other audit evidence, and whether they have been appropriately reflected
in the financial statements;

Source Report / Conclusion
Data + Assumptions + Method =

a.Relevance (Suitable: - Industry --Relevant (Suitable as per
a.Relevance (Suitable: -Time
Period / Extraction) / Circumstances) contract / FRF)
b.Accuracy b.Reasonableness
c.Completeness --Reasonable
-- Consistent with Other Audit
Evidence

-- Reflected in FST

Author’s Note
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