Here’s a simplified version of the excerpt:

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Using the Work of Other Auditors and Experts

When auditors use the work done by other auditors or experts, they are still responsible for
making their own judgment and giving an opinion on the financial information. Therefore,
auditors must make sure that the work done by others is good enough for their own purposes.
The standards related to using the work of other auditors and experts are in the ISA 600 series.

The Three Key Standards:

1. ISA 600 - Deals with group audits and the work of auditors from different parts of the group
(e.g., auditors for different subsidiaries).

2. ISA 610 (Revised) - Talks about when external auditors can use the work of internal auditors
within the company.

3. ISA 620 - Explains how auditors can use experts in other fields to help with certain tasks, like
valuing assets or estimating liabilities.

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Group Audits and Component Auditors (ISA 600)

In a group audit (like an audit of a big company with different subsidiaries), auditors might rely
on the work of other auditors who focus on the subsidiaries. The group auditor should:

Ensure the other auditor is independent and follows the rules.

Check if the other auditor is experienced and qualified.

Be involved in the audit process of the other auditor to make sure they get enough evidence for
their own work.

Understand any rules that govern the work of the other auditor.
When one part of the group is very important (e.g., a big subsidiary), the auditor should perform
a more detailed audit or use analytical methods to check the financial information of that part.

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Internal Auditors (ISA 610 Revised)

Internal auditors are employees within the company who help with audits. The external auditor
(the one hired to review the company’s financials) may use the work of internal auditors if it
helps with the external audit. However, the external auditor must:

Evaluate the internal auditors’ competence and how well they follow procedures.

Use less of the internal auditors’ work if the risks are high, or if the internal auditors' work seems
unreliable.

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Using the Work of an Expert (ISA 620)

Sometimes auditors need specialists to help with tasks that need specific knowledge, like
valuing assets, calculating insurance liabilities, or estimating oil reserves. These specialists
could be experts hired by the auditor or by the company. If an auditor decides to use an expert,
they must:

Understand the expert’s area of expertise well enough to assess whether their work is good
enough for the audit.

Evaluate the expert’s work to make sure it fits with other audit evidence.

Auditors should not mention the expert’s work in their report unless the law requires it, to avoid
reducing the auditor’s responsibility for the opinion they give.

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Using the Work of Management’s Experts (ISA 500)

Sometimes, a company’s own experts (e.g., valuers, actuaries, engineers) are used to prepare
financial statements. The auditor must evaluate:

The expert’s skills and independence (e.g., whether they have the right qualifications and follow
professional standards).

The methods and assumptions used by the expert.

The auditor should check if the expert’s conclusions are reasonable and consistent with other
audit evidence. If the expert’s work is used, the auditor doesn’t mention it in the report unless it’s
relevant to explaining a modification in the audit opinion.

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Common Mistakes in Using Experts

Sometimes auditors make mistakes by relying on experts (either the company's experts or
external ones) without properly evaluating their work. This can happen when the expert’s
assumptions are not checked or the auditor doesn’t have enough evidence to support their
conclusions. It’s important for auditors to always evaluate and test the work done by experts to
make sure it’s reliable for the audit.

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This version simplifies the concepts without the technical jargon, making it easier to understand.
Let me know if you need more details!

Here are simplified flashcards based on the key concepts from your CPA study guide excerpt:

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Flashcard 1: Using the Work of Other Auditors and Experts

Q: What is the auditor's responsibility when using the work of other auditors or experts? A: The
auditor is still responsible for forming an opinion on the financial statements and must ensure
the work of others is reliable for the audit.

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Flashcard 2: Types of Auditors and Experts

Q: What are the three types of auditors/experts whose work an auditor may use? A:

1. Component Auditors (auditing parts of a group’s financial statements).

2. Internal Auditors (working within the company).

3. Auditor’s Experts (specialists outside of accounting, like valuers or actuaries).

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Flashcard 3: Component Auditors (Group Audits)

Q: When should a group auditor rely on the work of component auditors? A: The group auditor
should assess if the component auditor follows ethical rules, is competent, and ensures enough
evidence is collected for the group audit.

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Flashcard 4: Significant Components in Group Audits

Q: How do auditors decide when to do a full audit of a group component (e.g., a subsidiary)? A:
A full audit is needed when the component is important to the group, typically contributing more
than 15% of key financial figures like net profit.

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Flashcard 5: Internal Auditors

Q: How does an external auditor use internal auditors’ work? A: The external auditor checks the
internal audit’s work to ensure it’s suitable for the external audit. If necessary, the external
auditor will perform their own tests.

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Flashcard 6: When to Use Internal Audit Work

Q: When should an external auditor use less of the internal audit’s work? A: When the risk is
high, when judgment is needed, or when there are concerns about the internal audit’s
independence or competence.

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Flashcard 7: Auditor’s Experts

Q: What is an auditor's expert? A: An expert is someone with special knowledge in areas like
asset valuation or insurance liabilities, whose work helps the auditor collect enough evidence.

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Flashcard 8: Using an Auditor's Expert

Q: What should the auditor consider before using an expert’s work? A: The auditor checks the
expert’s qualifications, experience, and whether their work is adequate and reasonable for the
audit.

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Flashcard 9: Management’s Experts

Q: What is a management's expert? A: A management expert is someone hired by the company

for specialized tasks like asset valuations, and their work helps prepare the financial statements.

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Flashcard 10: When to Rely on Management’s Expert Work

Q: How should an auditor assess management’s expert work? A: The auditor must check if the
expert is qualified, whether their work is reasonable, and if it’s consistent with other evidence.

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Flashcard 11: Reporting on Expert Work

Q: When should an auditor mention an expert’s work in their report? A: The auditor should not
mention an expert unless the opinion is modified. If mentioned, it must be clear that the auditor
is still fully responsible for the audit opinion.

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Flashcard 12: Common Audit Deficiencies

Q: What is a common problem auditors face when using expert work? A: Auditors often fail to
test or properly assess the work of experts, leading to reliance on potentially weak or incomplete
evidence.

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These flashcards break down the main ideas from the study guide in simpler language for
easier comprehension.