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John Selwood's audit clinic

John tackles some tricky topics, including external property valuations and appropriate levels of audit engagement partner involvement.


My audit client has obtained an external property valuation from a well-known firm of property specialists for the purposes of preparing its year-end accounts. One of the non-executive directors of the audit client strongly disagrees with the valuation, believing that it is undervalued, and they have convinced the board to use their valuation rather than that provided by the original valuers.
My assessment is that the non-executive director has world-class expertise in their field and that they might be right. What should I do?


This is a very difficult position to be put in because, presumably, you don’t have the expertise to assess which is the right valuation. Also, given the disagreement here, I assume that this valuation is specialist enough that you couldn’t use any available market data to check the assumptions used. If you can, you should.

However, a good starting point is to revisit your risk assessment. Are there any risks at the assertion level or the financial statement level that could be driving the fraudulent manipulation of the financial statements? A higher property valuation might suit the directors if, for instance, the company were in financial distress. Also, if there is a high degree of estimation uncertainty in making the property valuation then these sorts of disagreements are more predictable.

Revisiting the risk assessment will help you decide the sufficiency and appropriateness of the audit evidence you need. Given that there are already too many experts, my next suggestion might seem unhelpful. But I think you might need your own expert.

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