THE INSTITUTE of Chartered Accountants of Jamaica's Standard on Auditing (same as International Standards on Auditing) - Using the Work of Another Auditor - states that the purpose of this Standard on Auditing (SA) is to establish standards and provide guidance when an auditor, reporting on the financial statements of an entity, uses the work of another auditor on the financial information of one or more components included in the financial statements of the entity.
This SA does not deal with those instances where two or more auditors are appointed as joint auditors nor does it deal with the auditor's relationship with a predecessor auditor. Further, when the principal auditor concludes that the financial statements of a component are immaterial, the standards in this SA do not apply.
When, however, several components, immaterial in themselves, are together material, the procedures outlined in this SA would need to be considered. When the principal auditor uses the work of another auditor, the principal auditor should determine how the work of the other auditor will affect the audit.
"Principal auditor" means the auditor with responsibility for reporting on the financial statements of an entity when those financial statements include financial information of one or more components audited by another auditor.
"Other auditor" means an auditor, other than the principal auditor, with responsibility for reporting on the financial information of a component which is included in the financial statements audited by the principal auditor. Other auditors include affiliated firms, whether using the same name or not, and correspondents, as well as unrelated auditors.
The auditor should consider whether the auditor's own participation is sufficient to be able to act as the principal auditor. For this purpose the auditor would consider:
The materiality of the portion of the financial statements which the principal auditor audits;
The principal auditor's degree of knowledge regarding the business of the components;
The risk of material misstatements in the financial statements of the components audited by the other auditor; and
The performance of additional procedures as set out in this SA regarding the components audited by the other auditor resulting in the principal auditor having significant participation in such audit.
When planning to use the work of another auditor, the principal auditor should consider the professional competence of the other auditor in the context of the specific assignment. The principal auditor should perform procedures to obtain sufficient appropriate audit evidence, that the work of the other auditor is adequate for the principal auditor's purposes, in the context of the specific assignment. The principal auditor should consider the significant findings of the other auditor.
The other auditor, knowing the context in which the principal auditor will use the other auditor's work, should cooperate with the principal auditor. For example, the other auditor would bring to the principal auditor's attention any aspect of the other auditor's work that cannot be carried out as requested. Similarly, subject to legal and professional considerations, the other auditor will need to be advised of any matters that come to the attention of the principal auditor which may have an important bearing on the other auditor's work.
Guidance is given as to the suggested audit procedures which can be used to obtain assurance. After satisfactorily carrying out the procedures, the principal auditor should issue an audit report without mentioning the other auditors.
When the principal auditor concludes that the work of the other auditor cannot be used and the principal auditor has not been able to perform sufficient additional procedures regarding the financial information of the component audited by the other auditor, the principal auditor should express a qualified opinion or disclaimer of opinion because there is a limitation in the scope of the audit.
Mr. Raphael E. Gordon is the managing partner of KPMG Peat Marwick, a member of the Public Accountancy Board, and Jamaica's representative on the Association of Chartered Certified Accountants International Assembly.
