 Hello and welcome to the session in which we would look at using the work of a specialist in an audit. This topic is covered in an auditing course in college as well as the CPA exam, something that you need to be familiar with before sitting on the exam. Now if you are sitting for the CPA exam, I strongly suggest you check out my website farhatlectures.com. No, I don't replace your CPA review course. You might have your own CPA review course like Becker, Roger, Wiley, Surgeon, Glyme or any other course. That's fine. I don't replace them. What I can be, I can be that useful addition that's going to add 10 to 15 points to your CPA exam. So what's the difference between what I do in your CPA review course? The CPA review course review the material with you. I teach you the material. I add knowledge and by adding knowledge you would add points to your score and this is what I do. And here's your risk. 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Please like this recording on YouTube, share it with others, connect with me on Instagram and Facebook. So using the work of a specialist in an audit. So the first thing is the auditor, they must have sufficient understanding of the client business. Of course they would. Otherwise, if you don't understand the client business, you would not know whether you would need a specialist or not. Now, why do you need a specialist if you understand the client business? Because the job might require some specialized knowledge that the CPA firm do not possess. So if we don't have that specialized knowledge, well it might be necessary then to consult someone that someone is a specialist. There could be some examples. Well, let's assume you're auditing a company that have diamond. Well, you're not an expert in diamond. You need to hire an expert in diamond. Some person like this that's going to tell you the replacement cost of the inventory because that's something you need to know. Or you may need an actuary. Well, to determine the appropriateness of the recorded value of the insurance loss reserves. Now many CPA firms now they do hire their own actuary. But if you don't have an actuary because you need to pay them more and you don't have the work for them, then you know, there doesn't add any value. But if you have your own actuary, you don't need to hire a specialist. But if you don't have your own actuary on board, then you will need to hire a specialist. So if you're a CPA, frankly, and you are really good in mathematics and calculus, advanced math, why not go for your actuary exam? Also an attorney. You may need an attorney sometime to interpret the legal, the contract or the titles, the business valuation, so on and so forth. So sometime you might need an attorney. If you have one, that's fine. If not, you will need to hire one and that that attorney will be considered a specialist. You will need a software engineer. If you're auditing an engineering company, software engineering, they might have different projects and those different projects could be a different degree of completion. You want to book the revenue. Well, how far are they in 20%, 30%, 45%, you will need a software engineer that understand the codes to tell you how far are they, how far are within the degree of completion. So this way you can book the proper revenue. Now, the specialist can be employed by the client, can be employed by the firm sometime and sometime it's unaffiliated with the client or the firm. So just basically it's hired as an outside party, hired as an outside party. Now the auditor will have certain responsibilities because the auditing standard established those responsibilities for selecting these specialists as well as reviewing their work. So what would the auditor need to do? Well, the auditor need to understand, firstly, evaluate their professional qualification. Well, if you hire an actuary, you want to make sure that they pass the exam, they have the proper certification, they have years of experience, you want to check the references, so you just don't hire anyone right off the street. Also, you need to understand the objectives and the scope of their work. What are you hiring them for and what's the scope of their work? How much work are they doing for you? At some point, that's it, that's you're done with the work, thank you very much. Also, you need to be aware of any relationship between the client and the specialist, especially if the specialist is hired by the client. Well, you have to be aware of this. Well, why? Because it might impair the specialist's objectivity and by default, independence. We have to remember, we have to have independence that could be impaired in this area, so we have to be careful. Now, bear in mind, the use of the specialist does not affect the auditor responsibility for the audit. Simply put, you cannot say, well, the specialist gave me the report, therefore I'm not responsible. Not at all, the auditor is still responsible for the audit. That's part of the work. They hire the specialist. The specialist is not really independent from them in a sense that it's part of the audit task force, so it's part of the auditor's report, auditor's responsibility. Now, should we refer to the audit, to the specialist? Well, under normal circumstances, and what I mean by under normal circumstances, if we're giving an unqualified opinion, okay, we will not refer to the specialist at all. When do we report? When do we refer to the specialist? Here we go. Very specific circumstances. If the specialist's report, so the specialist's going to give us a report, whatever that report is, and that report resulted in modification of the audit report, such as qualified, we're going to give qualified, adverse, and disclaimer, because of the specialist report. Because the specialist told us something, okay, gave us a report, and because of that report, we modified the audit opinion, then we'll have to mention, obviously, why did we modify the opinion? Because we say we relied on the specialist's report. Under those circumstances, we will mention them, otherwise, simply put, they don't exist, as far as we're concerned, especially if we're given unqualified opinion. Why would we mention them? Okay, now at the end of this recording, I would like to remind you, if not for anything, check out my website to determine how well is your university the wing for the CPA exam. I'm going to invite you again to check out my resources, because I don't replace your becker, I don't replace your Roger, Gleim, or Wiley. I can be that useful edition, the useful edition. I hope I can help you pass the exam, study hard, good luck, and most importantly, stay safe.