XYZ Limited is engaged in infrastructure development and has significant balances relating to valuation of long-term assets and environmental…
CA Intermediate · Auditing and Ethics · RTP · May 2026
XYZ Limited is engaged in infrastructure development and has significant balances relating to valuation of long-term assets and environmental provisions. Environmental provisions are amounts recognised for future obligations like site restoration, environmental clean-up, or compliance with environmental laws, which also involve technical and judgmental estimates. For this purpose, the management has engaged independent experts to determine fair values and technical estimates which have been incorporated in the financial statements. While conducting the statutory audit, the auditor considers whether and to what extent he can rely on the work performed by the management's expert for obtaining audit evidence and forming his audit opinion. State the condition and procedures to be followed by the auditor while relying on the work of management's expert.
Suggested Answer and Working Notes:
(a) If the entity has employed or engaged experts, the auditor may rely on the works of experts, provided he is satisfied that sufficient and appropriate audit evidence is obtained with reasonable assurance to form an opinion on the financial statements. 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, having regard to the significance of that expert's work for the auditor's purposes; (a) Evaluate the competence, capabilities and objectivity of that expert; (b) Obtain an understanding of the work of that expert; and (c) Evaluate the appropriateness of that expert's work as audit evidence for the relevant assertion. Thus, reliance on the work of a management's expert does not reduce the auditor's responsibility, and the auditor must exercise professional judgment to ensure that such work provides sufficient and appropriate audit evidence.
Topics: Audit Evidence
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