What does management's specialist mean on the CPA exam?
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Management's specialist. An expert management uses to help prepare the financial statements, such as an actuary or an appraiser. Their work is evidence the auditor evaluates, not audit work the auditor performed.
Defined against AU-C 501.27.
Worked example
A manufacturer's defined benefit pension obligation is calculated by an outside actuarial firm that the company hired and pays. The auditor learns that the lead actuary is the chief financial officer's brother-in-law. The auditor did not engage anyone of its own to check the figures.
What role does the actuary play, and what must the auditor do with the actuary's work?
- The company engaged the actuary to help prepare its statements, so the actuary is a management's specialist, not an auditor's specialist; nothing the actuary did is audit work.
- The auditor judges whether the actuary is competent and capable and whether the actuary is objective. The family tie to the CFO is a threat to objectivity that has to be weighed.
- The auditor also learns how the actuary did the work and judges whether it is appropriate evidence for the pension figures, including the assumptions and the census data the actuary was given.
Answer: The actuary is a management's specialist. The auditor assesses whether the actuary is competent, capable and objective, giving weight to the family relationship, understands the work, and judges whether it supports the pension obligation, testing more itself if it does not.
The trap: Applying the rules for an auditor's specialist, or treating the actuary's report as already audited. The work is management's evidence, and an objectivity problem lowers how much it can carry.
Based on AU-C 501.27; AU-C 620.09.
Which CPA exam sections use management's specialist?
Management's specialist appears in the AUD section of the CPA exam.
Related terms
- audit committee: A subcommittee of the board of directors that oversees financial reporting and the external audit.
- written representations: Statements the auditor requires from management to confirm matters or support other evidence.
- management override: Management using its authority to bypass controls that otherwise work.
- financial statements: The formal set an entity publishes: balance sheet, income statement, statement of cash flows, statement of changes in equity, and the notes.
- management's discussion and analysis: A narrative overview management provides ahead of the financial statements.
- internal audit: An in-house function that evaluates controls and processes and reports to those charged with governance.