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Whether auditor is required to check valauation done by third party

13 June 2018

A company has done a transaction based on third party valuation (under DCF method) . Is auditor required to check and verify the projections used by the company for doing DCF valuation.

CARO and ICFR requirement are applicable to company and the transaction is between a resident company and its foreign holding company.

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1 Replies

Siddharth Goel (Chartered Accountant) (3031 Points)
Replied 14 June 2018

Hi,

Ideally, the Auditor is required to check all the transactions in respect to projections and valuations. That should form part of the scope of the Audit while drawing the Scope of Audit.

The Auditor should and will check and verify the projections used by the company for doing DCF valuation.

But, in case the Auditor does not have the requisite knowledge and skills to verify that projections and calculations, which is highly unexpected, then the Auditor can obtain a Written Representation as per SA 580 from the company as to the correctness of the Valuation Report of the Actuary.

Also, SA 620 can also be reffered i.e. Using the work of an Expert and the Auditor can also get the Actaury Valuation Report independently to verify the Valuation made by the Company's actuary.