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

Rao & Associates complete the audit of Deccan Foods Ltd and sign the report on 20 May. In a later inquiry, a regulator questions the auditor's judgment on an accounting estimate, using information that became available only in September. Applying SA 200's guidance on professional judgment, how should the auditor's judgment be evaluated?

The judgment should be evaluated by whether it reflects a competent application of auditing and accounting principles and fits the facts and circumstances known to the auditor up to the date of the auditor's report. Later information, such as September data, is not used.

  1. ABy the outcome as known in September, since the actual result shows whether the judgment was right
  2. BBy 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 reportCorrect
  3. CBy whether the client's management agreed with the judgment at the time
  4. DBy whether the judgment led to a modified opinion

Explanation

SA 200 states that professional judgment is evaluated on whether it reflects a competent application of auditing and accounting principles and is consistent with facts and circumstances known up to the date of the auditor's report. Hindsight from September is therefore irrelevant. Option A applies hindsight, which is the key trap.

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