(April 2006)
Explanatory Statement
ASA 620 Using the Work of an Expert
Issued by the Auditing and Assurance Standards Board
Explanatory Statement
Reasons for Issuing ASA 620 Using the Work of an Expert
The Auditing and Assurance Standards Board (AUASB) issues Auditing Standard ASA 620 Using the Work of an Expert due to the requirements of the legislative provisions explained below.
The Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 established the AUASB as an independent statutory body under section 227A of the Australian Securities and Investments Commission Act 2001, as from 1 July 2004. Under section 336 of the Corporations Act 2001, the AUASB may make Auditing Standards for the purposes of the corporations legislation. These Auditing Standards are legislative instruments under the Legislative Instruments Act 2003.
Process of making Auditing Standards
Section 1455 of the Corporations Act 2001 and Corporations Regulation 10.5.01 gave interim legal endorsement from 1 July 2004 to the majority of Auditing Standards made by the former Auditing & Assurance Standards Board of the Australian Accounting Research Foundation. The AUASB has reviewed the Auditing Standards and has proceeded to make them as legally enforceable Auditing Standards under the Corporations Act 2001.
The Auditing Standards have been made also in accordance with the Financial Reporting Council’s Strategic Direction to the AUASB dated 6 April 2005, pursuant to section 225 of the ASIC Act.
The Strategic Direction, inter alia, provides that the AUASB develops Auditing Standards that:
- have a clear public interest focus and are of the highest quality;
- use the International Standards on Auditing (ISAs) of the International Auditing and Assurance Standards Board (IAASB) as a base;
- conform with the Australian regulatory environment; and
- are capable of enforcement.
In implementing the Strategic Direction, the AUASB has undertaken a process of thorough review and revision that has:
- addressed the enforceability of mandatory requirements;
- clarified auditors’ obligations under the Auditing Standards;
- provided for sector neutrality in the Auditing Standards; and
- included other amendments as necessary.
Purpose of Auditing Standard ASA 620 Using the Work of an Expert
The purpose of Auditing Standard ASA 620 is to establish mandatory requirements and provide explanatory guidance on using the work of an expert as audit evidence.
Auditing Standard ASA 620 is to be read in conjunction with the Preamble to AUASB Standards, which sets out the intentions of the AUASB on how the Auditing Standards are to be understood, interpreted and applied.
Operative Date
This Auditing Standard is operative for financial reporting periods commencing on or after 1 July 2006.
Main changes from Auditing Standard AUS 606 (July 2002) Using the Work of an Expert
The main differences between ASA 620 and AUS 606 are that in ASA 620:
- The word ‘shall’, in the bold-type paragraphs, is the terminology used to describe an auditor’s mandatory requirements, whereas an auditor’s degree of responsibility is described in AUS 606 by the word ‘should’.
- The explanatory guidance paragraphs provide guidance and illustrative examples to assist the auditor in fulfilling the mandatory requirements, whereas in AUS 606 some obligations are implied within certain explanatory paragraphs. Accordingly, such paragraphs have been redrafted to clarify that the matter forms part of explanatory guidance.
- Includes as an expert a person employed by the auditor, whereas in AUS 606, a person employed by the auditor is not considered an expert.
Consultation prior to issuing this Auditing Standard
The AUASB has consulted publicly as part of its due process in developing this Auditing Standard. Exposure Draft ED 21/05 Proposed Auditing Standard: Using the Work of an Expert (Re-issuance of AUS 606) was issued on 28 October 2005 with a 45 day comment period. Submissions were received by the AUASB and it has considered these submissions as part of the development and finalisation of this Auditing Standard.
Overview
The Auditing and Assurance Standards Board (AUASB) introduced Auditing Standard ASA 620 Using the Work of an Expert in 2006 to establish clear mandatory requirements and provide explanatory guidance on the use of expert work as audit evidence. This was necessitated by the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004, which established the AUASB as an independent statutory body under section 227A of the Australian Securities and Investments Commission Act 2001. As mandated by section 336 of the Corporations Act 2001, the AUASB's role includes developing Auditing Standards that are enforceable and conform to the Australian regulatory environment. Auditing Standard ASA 620 aims to ensure that auditors appropriately use the work of an expert while maintaining the integrity and quality of the auditing process. The standard, which became operative for financial reporting periods commencing on or after 1 July 2006, includes significant changes from its predecessor, AUS 606, such as the use of mandatory terminology and expanded definitions of experts.
Scope and Application
The Auditing and Assurance Standards Board (AUASB) has issued Auditing Standard ASA 620 Using the Work of an Expert under the legislative framework established by the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004, which positioned the AUASB as an independent statutory body. This Auditing Standard applies to auditors of financial reports, including those who are registered auditors under the Corporations Act 2001. ASA 620 provides mandatory requirements and guidance on using the work of an expert as audit evidence, aiming to ensure that auditors effectively evaluate the appropriateness and sufficiency of expert work. This Standard applies to financial reporting periods commencing on or after 1 July 2006, and it is designed to be read in conjunction with the Preamble to AUASB Standards. The AUASB has made efforts to ensure that the Auditing Standards are enforceable, sector neutral, and conform with the Australian regulatory environment, reflecting the Financial Reporting Council’s Strategic Direction. The development of ASA 620 involved public consultation and a review process to clarify and strengthen auditors' obligations and to address issues of enforceability.
Key Provisions
The key provisions of Auditing Standard ASA 620 Using the Work of an Expert (hereafter "ASA 620") are primarily found in Sections 1 through 16, and these sections establish the mandatory requirements and provide explanatory guidance for auditors when using the work of an expert as audit evidence (Section 1). ASA 620 defines an expert as a person or organisation possessing skills, knowledge, and experience in a particular field. It outlines the auditor's responsibility to determine whether the expert's work is reliable and relevant to the audit, and whether the expert's findings are adequately documented and supported (Sections 4 to 6). The standard requires auditors to evaluate the competence, capabilities, and objectivity of the expert, as well as the appropriateness of the expert's methods and the relevance of the work to the audit (Sections 7 to 10). Additionally, ASA 620 mandates that auditors obtain an understanding of the expert's work and evaluate the appropriateness of the expert's assumptions and methods, including whether they are consistent with the financial reporting framework and the applicable Australian Accounting Standards (Sections 11 to 16).
Under ASA 620, the obligations imposed on auditors are to conduct a thorough evaluation of the expert's work to ensure its reliability and relevance to the audit. Auditors must assess the expert's competence, capabilities, and objectivity, and ensure that the expert's work is appropriately documented and supported. They must also obtain a sufficient understanding of the expert's work and evaluate the appropriateness of the expert's methods and assumptions. Auditors must communicate with the expert to gain an understanding of the work and to ensure that the expert's work is consistent with the financial reporting framework and the applicable Australian Accounting Standards. If the auditor identifies any issues with the expert's work, they must determine the implications for the audit and take appropriate action, which may include requesting additional work from the expert or modifying the audit approach.
Failure to comply with the requirements of ASA 620 may result in civil or criminal consequences. While ASA 620 itself does not explicitly state penalties for non-compliance, breaches of auditing standards under the Corporations Act 2001 may lead to penalties. For example, under section 1317H of the Corporations Act 2001, individuals who engage in conduct that breaches an auditing standard may be subject to civil penalty provisions, with maximum penalties for individuals reaching up to $200,000 for serious contraventions and up to $1.1 million for companies. Additionally, under section 1317E of the Corporations Act 2001, criminal penalties may apply for serious and repeated contraventions, with maximum penalties of up to 5 years imprisonment for individuals and fines up to $210,000 for companies. Therefore, auditors must ensure strict compliance with ASA 620 to avoid potential legal repercussions.