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CA Final · Advanced Auditing, Assurance and Professional Ethics · General Auditing Principles and Auditors Responsibilities

CA Tanvi signed the audit report of Sagar Foods Ltd after exercising judgment on a complex estimate based on the facts known to her up to the report date. Two months later, new events showed the estimate to be materially different. A reviewer questions her judgment. Under SA 200, how is professional judgment evaluated?

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

  1. ABy whether the final outcome of the estimate matched the auditor's conclusion
  2. BBy whether the judgment reflects competent application of auditing and accounting principles and is consistent with facts known up to the date of the auditor's reportCorrect
  3. CBy whether the management agreed with the judgment at the time of the audit
  4. DBy whether the judgment produced the most conservative figure possible

Explanation

SA 200 says professional judgment is evaluated on whether it reflects competent application of auditing and accounting principles and is appropriate in light of facts known up to the date of the auditor's report. Hindsight outcomes (option A) are not the test.

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