Professional Judgment: It means making informed decisions by a professional accountant about the courses of actions that are appropriate in the circumstances during an audit engagement, in the context of auditing, accounting and ethical standards and by applying the relevant training, knowledge and experience.
Why Professional Judgment is necessary;
Professional judgment is essential to the proper conduct of an audit. This is because interpretation of relevant ethical requirements and the ISAs and the informed decisions required throughout the audit cannot be made without the application of relevant knowledge and experience to the facts and circumstances.
Professional judgment is necessary in particular when taking decisions about:
- Materiality and audit risk
- The nature, timing and extent of audit procedures used to meet the requirements of the ISAs and gather audit evidence.
- Evaluating whether sufficient appropriate audit evidence has been obtained to achieve the objectives of the auditor.
- The evaluation of management’s judgments in applying the entity’s applicable financial reporting framework and accounting policies.
- The drawing of conclusions based on the audit evidence obtained, for example, assessing the reasonableness of the estimates made by the management in preparing the financial statements
Professional Skepticism: It refers to an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence. However, it does not mean that the auditors should disbelieve everything they are told, but they should view what they are told with a skeptical attitude, and consider whether it appears reasonable and whether it conflicts with any other evidence. The auditor should always maintain an attitude of professional skepticism throughout the audit: Although the auditor cannot be expected to disregard past experience of the honesty and integrity of the entity’s management and those charged with governance, the auditor’s attitude of professional skepticism is particularly important in considering the risks of material misstatement on account of changes in circumstances.
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