AFM202 Lecture Notes - Lecture 1: Arithmetic Function, Audit Evidence, Audit Risk
4 Jun 2018
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1. If an auditor’s past experience with a client suggests that management acts
with honesty and integrity, what impact should this belief have on the
auditor’s professional skepticism? Explain.
• Nevertheless, a belief that management and those charged with governance are
honest and have integrity does not relieve the auditor of the need to maintain
professional skepticism or allow the auditor to be satisfied with less-than-
persuasive audit evidence when obtaining reasonable assurance.
2. For what audit decisions is professional judgment particularly important?
• Materiality and audit risk.
• The nature, timing and extent of audit procedures used to meet the requirements
of the CASs and gather audit evidence.
• 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.
• The evaluation of management's judgments in applying the entity's applicable
financial reporting framework.
• 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.
3. How can an auditor’s professional judgment be evaluated?
• 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.
4. How must an auditor document their professional judgments?
• 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.
5. Is the absence of information about something of use to an auditor?
Explain.
• In addition, in some cases, the absence of information (for example,
management's refusal to provide a requested representation) is used by the
auditor and, therefore, also constitutes audit evidence.
6. In general, what are the relationships between the risk of material
misstatement, the sufficiency of audit evidence, and the appropriateness of
audit evidence?
• The sufficiency and appropriateness of audit evidence are interrelated.
Sufficiency is the measure of the quantity of audit evidence. The quantity of
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