An auditor is evaluating the sufficiency of evidence regarding the fair value of a complex financial instrument (Level 3 input) held by a nonissuer. Management has used a specialist to value the instrument. The auditor has tested the specialist's competence and objectivity. Which of the following additional procedures is MOST appropriate?

Answer options:

Accept the specialist's value without further testing, as the specialist is independent and competent.

Evaluate the appropriateness of the valuation model used and the reasonableness of the significant assumptions.

Request that management hire a second specialist to corroborate the first specialist's findings.

Disclose the identity of the specialist in the audit opinion to share responsibility.

How to approach this question

Recall AU-C 500/540. The auditor is responsible for the opinion. They must 'look under the hood' of the specialist's work (Methods, Assumptions, Data).

Full Answer

B.Evaluate the appropriateness of the valuation model used and the reasonableness of the significant assumptions.✓ Correct

When using the work of a management's specialist, the auditor must evaluate the competence, capabilities, and objectivity of the specialist; obtain an understanding of the work; and evaluate the appropriateness of that work as audit evidence (checking assumptions, methods, and source data).

Common mistakes

Thinking the auditor can just accept the specialist's number; thinking the auditor mentions the specialist in the report.

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