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

In the audit of Sundaram Engineering Ltd, the auditor concluded in March that a provision was reasonable based on information known then. In August, after the auditor's report date, a customer unexpectedly defaulted for reasons that could not have been known earlier. A member claims the judgment was poor. How does SA 200 say professional judgment can be 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 known to the auditor up to the date of the auditor's report, not by later unforeseeable outcomes.

  1. ABased on the actual outcome observed after the report date
  2. BBased on whether it reflects competent application of auditing and accounting principles and is appropriate and consistent with facts known up to the date of the auditor's reportCorrect
  3. CBased only on the view of the audit committee
  4. DBased on whether the client's management agreed with it

Explanation

SA 200 evaluates professional judgment by competent application of auditing and accounting principles, in light of facts and circumstances known to the auditor up to the date of the auditor's report. Hindsight about later events unknowable earlier is not the test, so the first option is wrong.

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