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CS Professional · Compliance Management, Audit and Due Diligence · Audit Principles and Techniques

A regulator later questions a judgment made by the auditor of Godavari Steels Ltd on an inventory provision. Subsequent events after the audit report date show the provision was somewhat inadequate. How does SA 200 say professional judgment can be evaluated?

Professional judgment is evaluated by whether it reflects competent application of auditing and accounting principles and is appropriate and consistent with facts and circumstances known to the auditor up to the date of the auditor's report, not by hindsight outcomes or management agreement.

  1. ABy whether it reflects competent application of auditing and accounting principles and is consistent with facts known to the auditor up to the date of the auditor's reportCorrect
  2. BBy whether the eventual outcome proved the judgment right
  3. CBy whether management agreed with the judgment
  4. DBy whether the judgment minimised audit hours

Explanation

SA 200 evaluates judgment based on competent application of auditing and accounting principles and consistency with facts and circumstances known up to the report date. Hindsight outcomes, as in the later shortfall, are not the test, so the outcome-based option is wrong.

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