Professional Documents
Culture Documents
TOPIC 2:
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Professional Skepticism, Judgment, Decision Making and Audit Quality.
Professional scepticism
1. questioning mind,
2. being alert to misstatement due to error or fraud,
3. critical assessment of audit evidence.
Need to:
> question the sufficiency and appropriateness of audit evidence
> question the reliability of documents, information, explanations provided
by management
> being alert to contradictory evidence identifying and responding to risks
of fraud
> critically challenging management judgments 2
Professional Skepticism, Judgment, Decision Making and Audit Quality.
lack of knowledge and experience can affect the appropriate exercise of professional
skepticism.
use of the apprenticeship model in public accounting involves the use of relatively
inexperienced junior auditors whose lack of relevant knowledge and process expertise
can limit their ability to effectively apply professional skepticism.
substantial cognitive effort applied to simply understand the issues and apply an audit
methodology they adopt an “understanding mindset” rather than a “challenging” or
“questioning” mindset and may have difficulty challenging management’s views and
preferences.
This threat points to the importance of mentoring junior auditors and maintaining a
rigorous level of supervision and review by more experienced auditors
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Professional Skepticism, Judgment, Decision Making and Audit Quality.
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Considerations When Applying Professional Judgment.
GATHER THE FACTS:
Objectively obtain a thorough understanding of
the relevant facts and information available
concerning the transaction, event, or situation.
Consider the following:
Have source documents & other materials
been examined, knowledgeable client personnel
interviewed & other available sources of
information considered?
Were the appropriateness and reliability of the
assumptions and data to be used in the analysis
of the transaction or situation sufficiently
assessed, tested, and objectively challenged by
obtaining sufficient competent evidence?
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Considerations When Applying Professional Judgment.
REVIEW RELEVANT LITERATURE:
Identify the accounting or auditing literature (or
other standards and rules) relevant to the issue and
the different sources of professional auditing and
attestation pronouncements. Consider the following:
•Has the relevant accounting or auditing standard
been identified and reviewed, recognizing that
reference to more than one authority may be
appropriate to address the issue?
•Have the underlying principles in the relevant
accounting or auditing literature been considered?
•One particular authority may not address the issue
directly, have other pronouncements or literature, by
analogy, been considered as appropriate?
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Considerations When Applying Professional Judgment
ANALYZE ISSUE:
Apply the applicable accounting or auditing literature to
the relevant facts and other information concerning the
transaction, event, or situation and assess the most
appropriate accounting treatment or auditing approach
under the circumstances.
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Considerations When Applying Professional Judgment
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Decision Making and Audit Quality.
Accuracy
Validity
Reliability
Timeliness
Relevance
Completeness
Mahatma Gandhi……
ACC802
End of TOPIC 2
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