Introduction To Audit of Specialized Industries

INTRODUCTION

TO AUDIT OF
SPECIALIZED
INDUSTRIES
Chri st i an Ki ng S. I l ard e, CPA
Specialized Industries

 Specialized Industries is not necessarily rare or even unusual

 What makes these industries special is that:
a. They are likely to have a special fi nancial reporting standard

applicable to them.
b. Have distinct accounting policies which have been developed

to account for specialized transactions and balances which are
based on the normally-applied fi nancial reporting standards.
Example
PAS 41 Agriculture
PFRS 6 Exploration of Evaluation of Mineral Resources
IFRS9/IFRS7 Financial Instruments and Financial Instruments;

Disclosures
PFRS 17 Insurance Contracts

Examples of Specialized Industries
• A i rl i n e C o m p a n i e s
• E d u c a t i o n a l I n s t i t u t i on
• Banking, Insurance and other Financial Institutions
• Pe t ro l e u m C om p a n i e s
• Mining
• A g r i cu l t u r e
• Po w e r D i s t r i b u t o r
• Te l e co m m u n i c a t i o n s
• N P O ( C i v i c O r g a n i z a t i on s )
Characteristics of Specialized Industries
• High Risk (Publicly-listed or with Public Accountability)
• Strict and several compliance to laws and government

agencies and its regulations
• Complex Accounting ( Revenue Recognition)

Audit Considerations
1. Competence
2. Audit Planning Considerations
3. Reliance on Experts
Competence
-Audit Firm
-Audit Partner and Audit Team to handle the Audit Engagement
-Independent Audit Partner

Needed Competence of Audit Firm
1. Knowledge of relevant industries
2. Has experience with regulatory or reporting requirements
3. The ability to gain the necessary skills and knowledge

eff ectively
ISQC1/PSQC1
QUALITY CONTROL FOR FIRMS THAT PERFORM AUDIT AND

REVIEWS OF FINANCIAL STATEMENT AND OTHER ASSURANCE
AND RELATED SERVICES ENGAGEMENTS
-requires the audit fi rm to consider whether the fi rm is

competent to perform the engagement and has the capabilities,
including time and resources to do so.
Competence
The audit fi rm should also ensure that there is an adequate

documentation to demonstrate that competence has been
considered, and the steps that have been taken to improve
competence where necessary, for example through appropriate
staff training
Audit Planning Considerations
Ide n ti fi ca t io n of t he r is k of m at e ria l mi ss t at em en t in a s p ec ia l ized

i n du st ri es s ho u ld be a ppr o a ch e d i n t h e s a me wa s as in a ny o t he r a ud it- by
o bt ai ni ng a pp ro pr ia te un d er st an di n g o f t h e bu s in es s a nd i ts envir o n men t
To a ss is t th e a ud it t ea m me mbe r s as s ign e d t o a s pe c ia li ze d in du s tr ie s
c l ie nt , t he a ud it fi rm i s l ikel y to h ave ad di ti o na l r es o u rc es ava ila b le . Th e re
m ay be ;
- bri efi n g no t e s
- in te rn al t ec h ni c al gu ida n c e o n ho w s h o ul d fi na n ci a l re po r t in g s ho u ld be
a p pli ed wi th i n th e s ec t o r
Audit Planning Considerations
It is also important to remember that while there may be specifi c

risk of material misstatement relating to the industry-specifi c
balances and transactions, there must also be appropriate
consideration of the normal balances and transactions
Reliance on Experts
The Auditor may plan to use an auditor ’s expert to obtain

evidence
This is quite likely in a specialized industry as despite being

competent to perform the engagement, the audit fi rm may not
have the necessary specifi c expertise in some areas,
Reliance on Experts
In this situation, the audit fi rm must adhere to the requirements

and principles of ISA620/PSA620. Using the work of an Expert
IMPORTANT NOTE:
It is particularly important that the auditor evaluates the

relevance and adequacy of experts fi ndings or conclusions. There
is danger of over-reliance on the expert’s work; the fact that the
audit is specialized nature does not mean that the auditor can
pass all responsibility over to an expert.

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INTRODUCTION

 Specialized Industries is not necessarily rare or even unusual

 What makes these industries special is that:

a. They are likely to have a special fi nancial reporting standard

b. Have distinct accounting policies which have been developed

PFRS 6 Exploration of Evaluation of Mineral Resources

IFRS9/IFRS7 Financial Instruments and Financial Instruments;

PFRS 17 Insurance Contracts

• Banking, Insurance and other Financial Institutions

• High Risk (Publicly-listed or with Public Accountability)

• Strict and several compliance to laws and government

• Complex Accounting ( Revenue Recognition)

2. Audit Planning Considerations

-Audit Partner and Audit Team to handle the Audit Engagement

-Independent Audit Partner

1. Knowledge of relevant industries

2. Has experience with regulatory or reporting requirements

3. The ability to gain the necessary skills and knowledge

QUALITY CONTROL FOR FIRMS THAT PERFORM AUDIT AND

-requires the audit fi rm to consider whether the fi rm is

The audit fi rm should also ensure that there is an adequate

Ide n ti fi ca t io n of t he r is k of m at e ria l mi ss t at em en t in a s p ec ia l ized

It is also important to remember that while there may be specifi c

The Auditor may plan to use an auditor ’s expert to obtain

This is quite likely in a specialized industry as despite being

In this situation, the audit fi rm must adhere to the requirements

It is particularly important that the auditor evaluates the

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