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

CA Vikram audits Orion Retail Ltd. Early in the audit he concludes that his judgment on a complex provision was reasonable on the facts known up to the date of his report. Later, after the report date, an unforeseen event shows the estimate to be inaccurate. In evaluating whether his professional judgment was sound, which approach reflects SA 200?

Professional judgment is evaluated by whether it reflects a competent application of auditing and accounting principles and is appropriate in the light of, and consistent with, the facts and circumstances known to the auditor up to the date of the auditor's report. Later outcomes or hindsight do not determine soundness.

  1. AJudgment is sound only if the later outcome matches the estimate made
  2. BJudgment is evaluated by whether it reflects a competent application of auditing and accounting principles and is appropriate in light of, and consistent with, facts and circumstances known up to the date of the auditor's reportCorrect
  3. CJudgment is sound only if the client management agrees with it
  4. DJudgment is evaluated by the hindsight of all facts known at the date of the later event

Explanation

SA 200 A26 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 evaluation is therefore wrong. Agreement of management is irrelevant to this test.

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