Reliance on actuary

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Narendra (Querist)
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24 December 2011 How can we place reliance on actuary without checking the figures and calculations.
Auditing standard (SA-620) says that to place reliance on the experts by performing a basic checking about their qualifications, and comparing estimates with the previous years, i agree!! but my doubt is another standard on auditing (SA-540) was inserted which says to have testing for the fair value estimates.Whether this standard contradicts that other standard to rely on the third party (i.e, Experts) or does it tell the same to just place reliance on experts.Pls Clarify!!

Mahesh Paryani

Mahesh Paryani (Expert)
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25 December 2011 Dear Narendra,

It is really nice to see your question.

it is already stated that an auditor is not an expert in all the areas

As per SA200 you can use the work of an expert (subjected to some conditions)

SA620 states the role of an auditor in an estimate is done by an expert

an independent expert in the field of valuation has done the valuation and the auditor has verified the asumption used in the valuation
this statement clearly states the valuation is free from material mistatement
in simple words you have tested the fare value of an estimate buy testing the independence and the assumptions.

so in a way you have also complied with SA540

and there is no contraduction of SA.

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Narendra

Narendra (Querist)
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26 December 2011 Dear Mahesh,

Thanks for ur reply.I am satisfied but i have other small doubt to my knowledge while doing audit we dont see the basis of the assumptions(i.e., Demographic and financial assumptions) we just compare whether the assumptions sent by the management are consistent with the assumptions taken by the actuary in the report.My doubt is whether this amounts to verification of the fair value estimate.If it is not testing strategy fraud can prevail in this major area.Pls clarify whether my contention is right or am i thinking in a wrong way.!!!

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Mahesh Paryani

Mahesh Paryani (Expert)
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29 December 2011 Dear Narendra,

Usually the demographic assumption taken by actuary are based on industrial standard. that is only if the company cannot arrive at it by the given set of conditions in the company.
if the actuary mention that they have used industrial standard you have to test whether you can justify the use of such standard. if you work out some other data with logical basis you can inform the actuary to change the assumption and arrive at the valuation.
financial assumption are strictly to be audited

you cannot just check the management assumption and the acturial assumption are the same.

you have to audit the same.

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