What Is Specialized Industry

I.
Audit & Assurance:

Specialized Industries
What is a specialized industry?
•A specialized industry is a distinct market that has a unique
way of accounting for transactions and reporting its
financial results. These differences are allowed under the
applicable accounting framework such as IFRS or GAAP.
• Specialized industries include:
• Airline
• Banking and insurance
• Agriculture, and
• Oil extraction
Specialized industries
- are likely to have specific financial reporting standards
applicable to them, or to have a distinct accounting
policies which have been developed to account for
specialized transactions and balances which are based
on the normally-applied financial reporting standards.
For instance:
PAS 41, Agriculture is clearly relevant specifically to the
agriculture sector
PFRS 7, Financial Instruments: Disclosure

- Will need specific application by companies operating
in the banking sector.
AUDIT CONSIDERATIONS
COMPETENCE
When accepting an audit engagement involving a
specialist industry, the audit firm needs to pay close
attention to the competence of the audit firm to
provide the service.
PSQC 1, Quality Control for Firms That Perform Audits
and Reviews of Financial Statements, and Other
Assurance and Related Services Engagements
- Requires the audit firm to consider whether the firm

is competent to perform the engagement and has the
capabilities, including time and resources, to do so.
- This should include consideration of whether the
audit firm personnel has:
 knowledge of relevant industries
 has experience with relevant regulatory or reporting
requirements, or
 the ability to gain the necessary skills and knowledge
effectively.
- Regardless of size, audit firms may choose to
specialize themselves in the audit of clients in a
particular market or sector.
- The audit firm should also ensure that there is
adequate documentation to demonstrate that
competence has been considered, and the steps that
have been taken to improve competence where
necessary, for example through appropriate staff
training.
AUDIT CONSIDERATIONS
AUDIT PLANNING
Identification of the risk of material misstatement in a
specialized industry should be approached in the same
way as in any other audit – by obtaining appropriate
understanding of the business and its environment.
To assist audit team members assigned to a specialized
industry client, the audit firm is likely to have additional
resources available.
- There may be briefing notes or internal technical
guidance on how financial reporting standards should
be applied within the sector.
- For example, in the audit of banking sector clients, an
audit firm may produce guidance on the specific
application of IFRS Standards relating to the range of
financial instruments typically held by banks.
- Audit staff can then refer to this guidance when
performing the audit, particularly when identifying
risks of material misstatement.
- It is also important to remember that while there may
be specific risks of material misstatement relating to
the industry-specific balances and transactions, there
must also be appropriate consideration of the
“normal” balances and transactions.
- For instance, in the audit of bank, there will be plenty
of risks to consider other than those relating to bank-
specific transactions and balances, for example the
depreciation of properties, recognition of provisions
and impairment of goodwill would all still be relevant.
- These ‘normal’ types of risk must not be forgotten,
just because the client operates in a specialized
industry.
RELIANCE ON EXPERTS
 Linked to the previous matters, competence, audit
planning and the specialised nature of some transactions
and balances, the auditor may plan to use an auditor’s
expert to obtain audit evidence.
 This is quite likely in a specialised industry as despite
being competent to perform the engagement, the audit
firm may not have the necessary specific expertise in
some areas.
 For instance in the audit of a bank, specialists may be brought
in to value complex financial instruments.
 In this situation, the audit firm must adhere to the
requirements and principles of ISA 620, Using the Work of an
Auditor’s Expert which deals with matters including the
evaluation of the objectivity, competence and capabilities of
the auditor’s expert, determining and communicating the
scope and objectives of their work, and assessing their
findings.
 It is particularly important that the auditor evaluates
the relevance and adequacy of the expert’s findings
or conclusions. There is a danger of over-reliance on
the expert’s work; the fact that the audit is of a
specialised nature does not mean that the auditor
can pass all responsibility over to an expert.
 For instance, the auditor must consider whether the
expert’s findings are consistent with the auditor’s
understanding of the client and with the conclusions
of other audit procedures. Any inconsistencies must
be investigated.
CONCLUSION
 The audit of a client in a specialised industry can pose
some challenges to the audit firm. However, with proper
consideration of competence, and by providing staff with
additional support and guidance, these audits should not
necessarily be more complex or challenging to plan and
perform.
 Using experts can provide high quality audit evidence in
specialist situations, but the auditor must be careful to
fully evaluate the findings of the auditor’s expert and not
to over-rely on their work.
 For audit staff, working on this type of engagement can be
very rewarding, providing exposure to sometimes unusual
businesses.
REFERENCE/S
• www.accountingtools.com
• www.accaglobal.com
BIBLICAL INTEGRATION
Psalm 139:14
“I praise you, for I am fearfully and wonderfully made.
Wonderful are your works; my soul knows it very well.”

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I.

Audit & Assurance:

PFRS 7, Financial Instruments: Disclosure

- Requires the audit firm to consider whether the firm

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