Reliance on Surveyors 1941
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As much as I hate to do it, I must agree with the auditors in this case. Management must have some basic controls over information given to, and received from, third party specialists. Yes, you can rely on their ability to process the information you supply them and to integrate that information with other information sources they have. But, Management must take respsonsibility for supplying accurate information initially and for reviewing the results for reasonableness.
I have copied below excerpts from a practice guide relating to using 3rd party oil and gas reserve estimators. I assume you can easily taylor this to your suveryors problem. As you can see, it does not entail a lot of work.
Third Party Reserve Estimators- What are the controls to ensure that third party reserve estimator’s competency is assessed prior to engaging the third party?
- What are the controls to ensure an appropriate level of independence of the third party estimator?
Points to consider:
’ Does the third party estimator have an ownership interest in any of the company’s properties?
’ Does the third party estimator own stock in the company?
’ Does the third party estimator represent that they are independent?
’ Is there evidence that the third party estimators is financially dependent on the company?
’ Does the third party estimator wind up estimating its own work (e.g., related to an acquisition)? - What are the controls to ensure the completeness and accuracy of data submitted to and received from the third party reserve estimator?
- What are the controls to review the results of third party estimators?
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And you can procure SAS-70 from these surveyors which automatically requires disclosure of complimentary controls required at your organization. If you have those required complimentary controls existing in your control framework and if those controls are tested, then you are in compliance.
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Aren’t we getting confused here between third parties and the use of professionals? On the basis of these arguments I would have to have a SAS70 done on the auditor who produced the SAS70 to prove that they are capable of doing so. After all how independent are the auditors and how do I know they’ve tested everything necessary to reach a conclusion?.
The checklist itself is interesting and 1 and 2 are without doubt important considerations in this case. The position of a Chartered Surveryor is comparable to that of an accountant, a highly qualified but specialised professional governed by a set of standards and overseen by the RICS.
You’ve certainly placed some questions in my mind which I shall go and review but again how are auditors any different?
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Your chartered surveyor is a 3rd party service provider. If they are reputed they may have a SAS-70 audit conducted on their controls. All SAS-70 reports detail complimentary controls required at clients’ places complimenting the subject matter for which the surveyor has been hired. If that is the case, then testing of key complimentary controls identified in the SAS-70 report of this surveyor coupled with the valuation done by this surveyor should suffice.
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Ok in theory this may be correct, but frankly the idea of getting a SAS70 on your surveyor strikes me as completely absurd.
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No wonder SOX is messing up the NYSE…
I still stand by my original observation, perhaps more so given this argument, an auditor providing a SAS70 is thereby also a 3rd party provider and must therefore also be SAS70’d otherwise how can we rely on their conclusions on which we depend to sign off our SOX attestation.
Similarly should I be SAS70’ing my bank to satisfy myself that their services are OK including their bank statements? After all reconciling to these is a fundamental control to satisfying ourselves that the GL is OK. Clearly they are as much a 3rd party as the Chartered Surveyors.
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I agree that this leads ot absurdities, but this is the poison pill that we have to swallow. Normally, we do not procure SAS-70’s as they do not perform critical valuation of our financial statement numbers. Coincidentally, one bank manages our investment portfolio, including the valuation of our investments. We procured a SAS-70 from them.
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but this is the poison pill that we have to swallow
I am not convinced that it is. We are back in the realms of things ‘done in the name of SOx’ rather than actual SOX requirements.
Many of these ‘requirements’ initiate from auditors and many of the proposed reforms seem to be around AS2 and so on.
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I guess I’ll put in my 2 cents worth on this discussion.
Surveyors are not third party service providers. They are subject matter experts, not unlike an actuary. They do not process transactional information such as a service provider would, but rather they provide their expertise in valuing property. The guidance is clear that SAS 70 reports are not required from subject matter experts, only from service providers and then only if we are placing any reliance on their processing controls.
I was told that banks do not provide SAS 70 reports. We do not require them from our credit card processors or any of our banks. The banking industry has tight internal control requirements already. We essentially rely on the fact that the industry has these controls in place and that they are regularly audited.
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I was told that banks do not provide SAS 70 reports. We do not require them from our credit card processors or any of our banks. The banking industry has tight internal control requirements already. We essentially rely on the fact that the industry has these controls in place and that they are regularly audited.
You are absolutely corect Kymike.
The only time you may a SAS 70, or more likely a FRAG 21 report from a financial institution such as the bank would be if they are providing investment/ pension adminsitration services to your company.As for Chartered Surveyors, personally I would find their independent opinion much more reliable than a valuaton that has been made internally.
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Gents,
The train came off the tracks when someone introduced ‘third party service provider’ and SAS-70 requirements. Both of these were irrelevant to the topic and served no purpose other than to confuse a simple question that was posted regarding the use of a surveyor.
Mike correctly states, ‘Surveyors are not third party service providers. They are subject matter experts, not unlike an actuary.’
Additionally, an earlier point was highlighted that prescribed auditor guidance and use of a subject matter expert…aka, a specialist.
Let’s move on.
Respectully,
Milan
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The reason the 3rd party service provider was put because, auditors are challenging controls before the data is submitting to the surveyor, and these complimentary controls are always enumerated in the SAS-70 if there is any. If there is no SAS-70, yes we can move on and rely on the specialist evaluation and leave the compilation related control headache to the auditors. I was making life easier to one of forum members to take a SAS-70 route if available. I have seen cases where actuaries and banks providing SAS-70 report on their operations. Please do not be confused with commercial banks. Some banks do provide investment banking services including valuation of the FS and SAS-70 is the route to rely on client’s valuation on the FS. It is just a matter of experience in various fields to come up with a route not treaded before.
I hope that this helps