An auditor is auditing the fair value of Level 3 assets (illiquid, no observable market). Management uses a complex proprietary model. The auditor does not have the expertise to evaluate the model. The auditor should:

Answer options:

Qualify the opinion due to a scope limitation.

Rely on management's representation letter regarding the value.

Engage an auditor's specialist to evaluate the model and assumptions.

Audit the inputs to the model and assume the logic is correct.

How to approach this question

Recognize the need for specialized skills under AU-C 620.

Full Answer

C.Engage an auditor's specialist to evaluate the model and assumptions.✓ Correct

Engage an auditor's specialist to evaluate the model and assumptions.

When the auditor lacks the necessary expertise to evaluate complex estimates (like Level 3 fair values), they are required to obtain that expertise, typically by engaging an auditor's specialist. Relying on management or ignoring the model logic is not acceptable due care.

Common mistakes

Thinking a scope limitation is immediate. It's only a limitation if you try to get a specialist and fail.

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