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CAS 200.16 The auditor shall exercise professional judgment in planning and performing an audit of financial statements. (Ref:
Para. A26-A30)
Professional Judgment
(Ref: Para. 16)
CAS 200.A26 Professional judgment is essential to the proper conduct of an audit. This is because interpretation of relevant ethical requirements and the CASs and the informed decisions required throughout the audit cannot be made without the application of relevant knowledge and experience to the facts and circumstances. Professional judgment is necessary in particular regarding decisions about:
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Materiality and audit risk.
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The nature, timing and extent of audit procedures used to meet the requirements of the CASs and gather audit evidence.
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Evaluating whether sufficient appropriate audit evidence has been obtained, and whether more needs to be done to achieve the objectives of the CASs and thereby, the overall objectives of the auditor.
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The evaluation of management’s judgments in applying the entity’s applicable financial reporting framework.
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The drawing of conclusions based on the audit evidence obtained, for example, assessing the reasonableness of the estimates made by management in preparing the financial statements.
CAS 200.A27 The distinguishing feature of the professional judgment expected of an auditor is that it is exercised by an auditor whose training, knowledge and experience have assisted in developing the necessary competencies to achieve reasonable judgments.
CAS 200.A28 The exercise of professional judgment in any particular case is based on the facts and circumstances that are known by the auditor. Consultation on difficult or contentious matters during the course of the audit, both within the engagement team and between the engagement team and others at the appropriate level within or outside the firm, such as that required by CAS 220, assist the auditor in making informed and reasonable judgments.
CAS 200.A29 Professional judgment can be evaluated based on whether the judgment reached reflects a competent application of auditing and accounting principles and is appropriate in the light of, and consistent with, the facts and circumstances that were known to the auditor up to the date of the auditor’s report.
CAS 200.A30 Professional judgment needs to be exercised throughout the audit. It also needs to be appropriately documented. In this regard, the auditor is required to prepare audit documentation sufficient to enable an experienced auditor, having no previous connection with the audit, to understand the significant professional judgments made in reaching conclusions on significant matters arising during the audit. Professional judgment is not to be used as the justification for decisions that are not otherwise supported by the facts and circumstances of the engagement or sufficient appropriate audit evidence.
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CSAE 3001.42 The practitioner shall exercise professional judgment in planning and performing a direct engagement, including determining the nature, timing and extent of procedures. (Ref: Para. A80-A84)
Professional Judgment
(Ref: Para. 42)
CSAE 3001.A80 Professional judgment is essential to the proper conduct of an assurance engagement. This is because interpretation of relevant ethical requirements and relevant CSAEs and the informed decisions required throughout the engagement cannot be made without the application of relevant training, knowledge, and experience to the facts and circumstances. Professional judgment is necessary in particular regarding decisions about:
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Significance and engagement risk.
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The nature, timing and extent of procedures used to meet the requirements of relevant CSAEs and obtain evidence.
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Evaluating whether sufficient appropriate evidence has been obtained, and whether more needs to be done to achieve the objectives of this CSAE and any relevant subject-matter-specific CSAE. In particular, in the case of a limited assurance engagement, professional judgment is required in evaluating whether a meaningful level of assurance has been obtained.
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The appropriate conclusions to draw based on the evidence obtained.
CSAE 3001.A81 The distinguishing feature of the professional judgment expected of a practitioner is that it is exercised by a practitioner whose training, knowledge and experience have assisted in developing the necessary competencies to achieve reasonable judgments.
CSAE 3001.A82 The exercise of professional judgment in any particular case is based on the facts and circumstances that are known by the practitioner. Consultation on difficult or contentious matters during the course of the engagement, both within the engagement team and between the engagement team and others at the appropriate level within or outside the firm assist the practitioner in making informed and reasonable judgments.
CSAE 3001.A83 Professional judgment can be evaluated based on whether the judgment reached reflects a competent application of assurance and measurement or evaluation principles and is appropriate in the light of, and consistent with, the facts and circumstances that were known to the practitioner up to the date of the practitioner’s assurance report.
CSAE 3001.A84 Professional judgment needs to be exercised throughout the engagement. It also needs to be appropriately documented. In this regard, paragraph 82 requires the practitioner to prepare documentation sufficient to enable an experienced practitioner, having no previous connection with the engagement, to understand the significant professional judgments made in reaching conclusions on significant matters arising during the engagement. Professional judgment is not to be used as the justification for decisions that are not otherwise supported by the facts and circumstances of the engagement or sufficient appropriate evidence.
Documentation
CSAE 3001.82 The practitioner shall prepare on a timely basis engagement documentation that provides a record of the basis for the assurance report that is sufficient and appropriate to enable an experienced practitioner, having no previous connection with the engagement, to understand:
(Ref: Para. A198-A202)
[…]
(c) Significant matters arising during the engagement, the conclusions reached thereon, and significant professional judgments made in reaching those conclusions.
Documentation
(Ref: Para. 82-86)
CSAE 3001.A198 Documentation includes a record of the practitioner’s reasoning on all significant matters that require the exercise of professional judgment, and related conclusions. When difficult questions of principle or professional judgment exist, documentation that includes the relevant facts that were known by the practitioner at the time the conclusion was reached may assist in demonstrating the practitioner’s knowledge.
CSAE 3001.A199 It is neither necessary nor practical to document every matter considered, or professional judgment made, during an engagement. Further, it is unnecessary for the practitioner to document separately (as in a checklist, for example) compliance with matters for which compliance is demonstrated by documents included within the engagement file. Similarly, the practitioner need not include in the engagement file superseded drafts of working papers, notes that reflect incomplete or preliminary thinking, previous copies of documents corrected for typographical or other errors, and duplicates of documents.
CSAE 3001.A200 In applying professional judgment to assessing the extent of documentation to be prepared and retained, the practitioner may consider what is necessary to provide an understanding of the work performed and the basis of the principal decisions taken (but not the detailed aspects of the engagement) to another practitioner who has no previous experience with the engagement. That other practitioner may only be able to obtain an understanding of detailed aspects of the engagement by discussing them with the practitioner who prepared the documentation.
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