Audits have gotten more complicated, and that means more auditors will be using more specialists. But what qualifications does a specialist need to be entrusted with a role in an audit?

Recognizing the growing need of an answer to that question, the Auditing Standards Board has done some preliminary work on a new standard on the use of specialists. In February, the board decided that rather than issue a proposed standard, it would pass its work on to the International Audit and Assurance Standards Board as a project recommendation.

"We had several conversations with the international folks and they were very interested, so we decided that, rather than keep moving down the road unilaterally, we would send it over to them and work cooperatively to come out with an exposure draft," said Chuck Landes, director of auditing and attestation at the American Institute of CPAs.

IAASB technical director James M. Sylph confirmed that the two boards are working to converge American and international auditing standards, and that the IAASB would take on the project to avoid a duplication of work. In the international vernacular, the IAASB project refers to experts rather than specialists.

Sylph said that existing international standards were written for experts remote from the accounting process, such as actuaries and engineers. Today, however, there is an increasing need for experts who delve into the number-heavy world of forensics and fair value measurement.

"Auditors are beginning to recognize that they need to go out and get competent experts," Sylph said. "In some cases, that means going outside and hiring their own, and in some cases, it means asking managers to go out and hire their own."

The current ASB standard deals with all specialists, without differentiating whether they are hired by a company's management or by an auditor. The ASB is recommending that if a specialist is hired by management, the auditor should test the specialist's work as if it were management's.

"What we want to do is take away what we think may be a practice problem in some situations - the over-reliance on the use of specialists' work without the auditor doing sufficient due diligence and applying appropriate professional skepticism," Landes said.

When a specialist is hired by an auditor, the issue is whether that specialist is integral to the engagement team. The ASB is recommending that specialists who are an integral part of the team should comply with all of the CPA firm's quality control standards and procedures, such as continuing professional education requirements, independence and credentials.

The ASB has not defined the parameters that determine whether a specialist is integral to the team. That definition will be up to the IAASB.

Sylph indicated that he did not see the definition as especially difficult, but that it had to be decided and set down as guidance.

"There's limited guidance, and I think that many firms have developed their own practical guidance, and that tells us that the guidance at the international level is probably just out of date and weak and doesn't recognize what's happening in the world of using experts and specialists today," Sylph said.

Sylph said that he did not expect the board to lay out checklist criteria for experts. Rather, it is likely to establish procedures that auditors need to think about adopting.

Where the experts are

Landes sees three or four big areas in which the deployment of specialists has been moving from useful to necessary. Two of the areas - internal controls and fair value measurement - have resulted from new audit requirements.

Section 404 of the Sarbanes-Oxley Act requires auditors to verify that public companies have adequate internal controls. In that the same law makes chief executive officers responsible for the veracity of financial reports, CEOs have made internal controls not only more serious but more complicated. Many CPAs are simply not up to the task of auditing these controls, so they are relying on contracted experts to help them.

New standards requiring fair value measurement have also increased the reliance on specialists. To an unprecedented extent, companies must have assets and liabilities measured, impairments recognized, and other forms of fair value estimation, often for things that have no determinable market value. To audit such valuations, CPAs often either have to hire valuation experts or rely on the valuators that management has used.

The ASB's Statement of Auditing Standards 99, on forensic auditing, is also sending CPAs in search of fraud experts to help in preparing to audit for fraud risk or even to conduct investigations.

Technology is also requiring auditors to engage specialists. Auditors need to be able to certify that computer systems are secure and that computer-based internal controls are functioning and adequate. Given that technology changes constantly and becomes more complex, few CPAs are able to maintain up-to-date competency.

Landes said that the increased use of specialists is raising a significant question about a new role of auditors.

"What competencies does the CPA [and] auditor of the future need?" Landes asked. "In addition to having good analytical skills, good judgment and professional skepticism, the CPA will need to have or have readily available forensic skills, valuation skills, and computer technology skills. ... A firm doesn't necessarily need to grow these skills in-house, but they will need to have the networks so they have the ability to reach out to the expertise they need on a given engagement."

Sylph said that one of the questions the IAASB task force will look into is the extent to which auditors, as general practitioners, must take responsibility for the work of experts. One option the task force will consider is the possibility of expert opinions being reported separately in financial reports.

Sylph said that it was too early to foresee when the project would be completed, but sometime in 2006 was the most likely timetable.

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