Mohan Ltd. having a net worth of 1,750 crore, is mandatorily required to comply with Ind AS. The company had various complex derivative contracts –…

As per SA 620, “Using the work of an Auditor's Expert”, the nature, scope and objectives of the auditor's expert's work may vary considerably with the circumstances, as may the respective roles and responsibilities of the auditor and the auditor's expert, and the nature, timing and extent of communication between the auditor and the auditor's expert. It is therefore required that these matters are agreed between the auditor and the auditor's expert. In certain situations, the need for a detailed agreement in writing is required like - The auditor's expert will have access to sensitive or confidential entity information.The matter to which the auditor's expert's work relates is highly complex.The auditor has not previously used work performed by that expert.The greater the extent of the auditor's expert's work, and its significance in the context of the audit. In the given case, Mohan Ltd. is mandatorily required to comply with Ind AS as it had complex derivative contracts requiring fair valuation under Ind AS 109. The company obtained valuations from a third party, and statutory auditor CA Paras engaged Mr. Sohan as an auditor's expert to assess their appropriateness and accuracy of the valuation methodology and results. Though it was their first time that they were working together and developed good bonding, no formal written agreement was made with the expert. Thus, as per SA 620 considering the complexity involved in the valuation and volume of derivatives and also due to the fact that the auditor and auditor's expert were new to each other, auditor should have signed a formal agreement/ engagement letter with the auditor's expert in respect of the work assigned to him.