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If question is silent, we can assume its management expert and such assumption should be clearly
written

QNO Evaluating the objectivity of the management expert Old Course – (N23R)
58.200 TITANIUM CNO-- 500.100
Mr. Shreyansh, while performing the audit of Red Rock & Silver Sand Limited which was involved in
phosphorus mining, decided to appoint an auditor’s expert for the valuation of environmental liabilities
and site clean-up costs. Red Rock & Silver Sand Limited reappointed Mr. Sheetal as an independent expert
for this engagement. For the last five years, management has been re-appointing Mr. Sheetal. Mr. Sheetal
calculated the environmental liabilities pertaining to completed mining sites and the sites which will be
discarded in the near future and a provision for clean-up costs. This provision was accepted by
management. Mr. Shreyansh, after performing the inquiries with management, was of the opinion that
the objectivity of the independent expert cannot be questioned just because he was appointed by
management as their expert. Hence, there is no need to raise a question on the objectivity of Mr. Sheetal
or on his work performed for the company. However, the audit partner was of the opinion that the audit
team needs to evaluate the objectivity of an expert engaged by the entity, irrespective of the fact that he
was appointed as an independent expert. Kindly guide the audit partner and Mr. Shreyansh with respect
to requirements pertaining to evaluating the objectivity of the management expert.
Answer As per SA 500 “Audit Evidence”, 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, have regard to the
significance of that expert’s work for the auditor’s purposes evaluate the competence, capabilities and
objectivity of that expert.
A broad range of circumstances may threaten objectivity, for example, self-interest threats, advocacy
threats, familiarity threats, self-review threats and intimidation threats. Safeguards may reduce such threats
and may be created either by external structures (for example, the management’s expert’s profession,
legislation or regulation), or by the management’s expert’s work environment (for example, quality control
policies and procedures). Although safeguards cannot eliminate all threats to a management expert’s
objectivity, threats such as intimidation threats may be of less significance to an expert engaged by the entity
than to an expert employed by the entity, and the effectiveness of safeguards such as quality control policies
and procedures may be greater. Because the threat to objectivity created by being an employee of the entity
will always be present, an expert employed by the entity cannot ordinarily be regarded as being more likely
to be objective than other employees of the entity.

When evaluating the objectivity of an expert engaged by the entity, it may be relevant to discuss with
management and that expert any interests and relationships that may create threats to the expert’s
objectivity and any applicable safeguards, including any professional requirements that apply to the expert;
and to evaluate whether the safeguards are adequate. Interests and relationships creating threats may
include:
• Financial interests.
• Business and personal relationships.
• Provision of other services.

In the current case, Red Rock & Silver Sand Limited re-appointed Mr. Sheetal for this engagement as an
independent expert. The audit team was of the view that the objectivity of the independent expert cannot
be questioned just because he was appointed by management as their expert. However, the audit partner
had a contrary view.

Hence, the audit team should evaluate the objectivity of an expert engaged by the entity as the threat to
objectivity, created by being an employee of the entity, will always be present. An expert appointed by the
entity cannot ordinarily be regarded as being more likely to be objective than other employees of the entity.
As a result, audit partner is correct in his view.

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