AUDIT AND

ASSURANCE:
SPECIALIZED INDUSTRY
For discussion today:

QUICK RECALL OF AUDIT ICE BREAKER SPECIALIZED INDUSTRIES

AND ASSURANCE INTRODUCTION
Auditing

◦ A systematic process of objectively obtaining and

evaluating evidence regarding assertions about economic
actions and events to ascertain the degree of
correspondence between those assertions and
established criteria and communication the results to
interested users.
◦ Auditing is a systematic process.
◦ An audit involves obtaining and evaluating evidences about
assertions regarding economic actions and events
◦ An audit is conducted objectively
◦ Auditors ascertain the degree of correspondence between assertions
and established criteria
◦ Auditors communicate the audit results to various interested users
Assurance

◦ An engagement whereby a practitioner expresses a

conclusion that enhances the degree of confidence of the
users on a subject matter prepared by a “responsible party”
when the subject matter is compared and measured
against established criteria
Level of Assurance
REASONABLE ASSURANCE (AUDIT)
Are aimed at “Reducing Engagement Risks” to an acceptably low level
in the light of the given circumstance. A positive expression in thereby
included in a practitioner’s report.

LIMITED ASSURANCE (REVIEW)

Also aimed at “Reducing Engagement Risks” to an acceptable level,
but that, there is a higher engagement risks than that when a reasonable
assurance is promised, since less extensive procedures are performed by the
practitioner.
Elements of Assurance Engagement

◦Three Party Relationship

◦Subject Matter
◦Suitable Criteria
◦Sufficient Appropriate Evidence
◦Written Report
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What is specialized industry?
◦ A specialized industry is a distinct market that has a unique way of
accounting for transactions and reporting its financial results.
There are allowed under the applicable accounting framework, such
as IFRS or GAAP.
◦ Examples of specialized industries are airlines companies, insurance
companies, banking and financial institutions, real estate, business
process outsourcing (BPO) entities, construction on contracting
companies, health maintenance organizations (HMO), holding
entities, logging and mining entities.
What makes these industries specialized?
◦ Is that they are likely either to have specific financial reporting
standards applicable to them, or to have distinct accounting
policies which have been developed to account for specialized
transactions and balances which are based on the normally-applied
financial reporting standards.
◦ For instance, IAS 41, Agriculture is clearly relevant specifically to the
agricultural sector and IFRS 7 Financial Instruments: disclosure will
need specific application by companies operating the banking sector
Audit Considerations

◦Competence
◦Audit Planning
◦Reliance on experts
Competence
◦ When accepting an audit engagement involving a specialist, the audit firm
needs to pay close attention to the competence of the audit firm to
provide the service.

◦ ISQC 1, Quality Control for Firms That Perform Audits and Reviews of
Financial Statement, and Other Assurance and Related Services
Engagements requires the audit firm to consider whether the firm is
competent to perform the engagement and has the capabilities, including
time and resources, to do so. This should include consideration of whether
the audit firm personnel has knowledge of relevant industries and has
experience with relevant regulatory or reporting requirements, or the
ability to gain the necessary skills and knowledge effectively.
 Audit Planning
◦ Identification of the risks of material misstatements in a specialized industry
should be approached in the same way as in any other audit – by obtaining
appropriate understanding of the business and its environment.
◦ To assist the audit team members assigned to a specialized industry client, the
audit firm is likely to have additional resources available. There may be
briefing notes or internal technical guidance on how financial reporting
standards should be applied within the sector. For example, in the audit of
banking sector clients, an audit firm may produce guidance on specific
application of IFRS Standards relating to the range of financial instruments
typically held by banks. Audit staff can then refer to this guidance when
performing the audit, particularly when identifying risks of material
misstatements.
Reliance on Experts
◦ The auditor may plan to use an auditor’s expert to obtain audit evidence. This
is quite likely in a specialized industry as despite being competent to perform
the engagement, the audit firm may not have the necessary specific expertise
in some areas.

◦ For instance, in the audit of bank, specialists may be brought in to value

complex financial instruments.

◦ The audit firm must adhere to the requirements and principles of ISA 620,
Using the Work of an Auditor’s Expert which deals with matters including the
evaluation of the objectivity, competence and capabilities of the auditor’s
expert, determining and communication the scope and objectives of their
work, and assessing their finding
Conclusion
◦ The audit of a client in a specialized industry can pose some
challenges to the audit firm. However, with proper consideration of
competence, and by providing staff with additional support and
guidance, there audits should not necessarily be more complex or
challenging to plan and perform. Using experts can provide high
quality audit evidence in specialist situations, but the auditor must be
careful to fully evaluate the findings of the auditor’s expert and not to
over-rely on their work. For audit staff, working on this type of
engagement can be very rewarding, providing exposure to
sometimes unusual businesses.