Evershine Refineries Ltd. has recognized a substantial provision towards decommissioning and environmental restoration obligations relating to its…

In the case of Evershine Refineries Ltd., the Company reduced its decommissioning and environmental restoration provision by 15% based on a technical assessment prepared by its internal CTO, who is a management expert. Since the provision involves significant estimation uncertainty and materially impacts profitability, and the CTO's incentives are linked to profitability targets, there is a risk of management bias affecting objectivity. Accordingly, as the assessment is prepared by management's expert, the provisions of SA 500 relating to evaluation of information prepared by management's expert are applicable. 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, having regard to the significance of that expert's work for the auditor's purposes, (i) Evaluate the competence, capabilities and objectivity of that expert; (ii) Obtain an understanding of the work of that expert; and (iii) Evaluate the appropriateness of that expert's work as audit evidence for the relevant assertion. The auditor may obtain information regarding the competence, capabilities and objectivity of a management's expert from a variety of sources, such as personal experience with previous work of that expert; discussions with that expert; discussions with others who are familiar with that expert's work; knowledge of that expert's qualifications; published papers or books written by that expert. Aspects of the management's expert's field relevant to the auditor's understanding may include what assumptions and methods are used by the management's expert, and whether they are generally accepted within that expert's field and appropriate for financial reporting purposes. The auditor may also consider the following while evaluating the appropriateness of the management's expert's work as audit evidence for the relevant assertion: (i) The relevance and reasonableness of that expert's findings or conclusions, their consistency with other audit evidence, and whether they have been appropriately reflected in the financial statements. (ii) If that expert's work involves use of significant assumptions and methods, the relevance and reasonableness of those assumptions and methods; and (iii) If that expert's work involves significant use of source data, the relevance, completeness, and accuracy of that source data. In view of above, despite the CTO's technical competence, CA Meera cannot rely solely on the CTO's assessment due to the possible threat to objectivity and significant estimation uncertainty involved. She should evaluate the assumptions, methods, and supporting data in accordance with SA 500 and obtain sufficient appropriate audit evidence before concluding on the reasonableness of the provision.