Audit of experts work

Audit of experts work

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I work for a company that has employed several experts to generate reports that feed into the calculation of several substantial balances in the financial statements. We have used renowned experts in their field in each case.

The company's auditors are insisting that they employ further experts to prepare reports on our experts reports - naturally at our expense. This seems to me a bit of overkill. Is this normal and does anyone else have experience of such requests from their auditors? I understand that auditors must ensure that the company has used appropriate estimates but does this normally mean an external report on an external report? The cost quoted is not inconsequential.

Any comments would be much appreciated.

Thanks

Charlie

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David Winch
By David Winch
19th Mar 2009 22:22

Opinions

I saw an interesting case in which an expert had given a valuation of the goodwill of a particular business. He approached this by considering what the cost would be to set up the identical business from scratch.

However the business has made significant losses each year for some years. My question (to myself) was, why would anyone want to replicate this set up? In my view the goodwill was 'worth' nothing at all.

I think it would be fair for the auditor to instruct an expert to review the instructions, work and conclusions of the expert appointed by the company. However I would not expect the auditor's expert to have to re-perform the work done by the company's expert (in the same way that the auditor does not re-perform the work done by a company's in house accountants in preparing the accounts / accounting records).

I am sure there is professional guidance for auditors in this area.

David

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By geoffwolf
19th Mar 2009 21:33

instructions
The auditors clearly have a right to inspect the instructions that were given to the expert valuers by the company and to take a view thereon. The fact that valuations can easily vary between experts and circumstances. It therefore probably depends on the amount of detailed argument in the report which may help to enable auditors to place reliance on a given value.

The call for a second opinion is therefore preferable if the outcome is likely to bring about an unqualified report .

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By User deleted
19th Mar 2009 21:02

Thanks Newsreader
Slightly less exotic than the stories in the FT!

The company works in the natural resources field and the reports concern the quantity of resources in place, the estimated cost of restoration after extraction and the net present value of the assets.

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By User deleted
19th Mar 2009 20:51

It's very topical
perhaps they have been following this..

http://www.ft.com/cms/s/0/2f4e07ac-1264-11de-b816-0000779fd2ac.html

http://www.ft.com/cms/s/0/0cda4c9a-13f8-11de-9e32-0000779fd2ac.html

and want to cover themselves

Presumably these balances are assets, and none of them have generated cash since the balance sheet date? It would help if you could give an idea of the field you are operating in as it may help others to advise. For instance is it a realtively esoteric area you work in? Is there a ready market for whatever these assets might turn into?

FInally how short is the distance between the experts report and the financial statments they 'feed into'? For instance an expert could report on a painting (its provenance, its brushwork, its rarity and so on) but the if the financial valuation has been inferred from the report by the company (not the expert), it may not be enough for the auditors to rely on. Does that make sense?

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