External Auditors' Evaluation Of A Management'S Expert'S Credibility: Evidence From Australia

The Australian Securities and Investments Commission (ASIC) has concerns that auditors are not adequately evaluating the reliability of the work of management's experts (MEs). We interviewed nine experienced auditors to understand how auditors evaluate MEs. We observe that some factors specified by auditing standards, such as an ME's competency in accounting standards, geographical location of the subject matter or the ME, and the sourcing of an ME play a minor role in an auditor's evaluation of an ME's credibility. In contrast, the reputation of an ME's firm is a key determinant. Auditors corroborate information from multiple sources, but verify only the ME's professional qualification. We identify three potential reasons for the ASIC's concerns: "Experts are considered cognitive authorities," "Documentation is the key," and "Move from a risk-based approach to a checklist approach."