During the risk assessment of a manufacturing client, the auditor identifies that the company has complex derivative instruments used for hedging. The audit team lacks experience with these specific instruments. What is the most appropriate response?

Answer options:

Withdraw from the engagement due to lack of competence.

Rely on management's specialist for the valuation.

Engage an auditor's specialist to assist in the valuation and assessment of the derivatives.

Qualify the opinion due to the inability to obtain sufficient appropriate evidence.

How to approach this question

Recognize the need for specialized skills (AU-C 620). If the team doesn't have it, they must get it (Specialist).

Full Answer

C.Engage an auditor's specialist to assist in the valuation and assessment of the derivatives.✓ Correct

Engage an auditor's specialist to assist in the valuation and assessment of the derivatives.

When the auditor lacks the necessary expertise in a specific field (like complex valuation of derivatives), they should engage an auditor's specialist to assist in obtaining sufficient appropriate audit evidence.

Common mistakes

Thinking you must resign (you can hire help) or relying on the client's expert (not independent).

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