In: Accounting
Consider the importance of documenting the rationale for your final conclusion. Why do you think it is important to document your rationale when finalizing your judgment? In addition, describe what is expected to be documented to support an auditor’s professional judgment.
Auditors are responsible for commenting on the true and fair view of financial statements. Whenever there is a discrepancy from the generally accepted accounting standards the auditor has to bring it to limelight through his report.
The audit report consists of the summary of the entity's financial consistence. The auditor before coming to conclusion on any of the deficiencies found in entity's activities he should obtain reasonable evidences for the same beacuse auditor is bound by law not to give any opinion based on any personal relationship. He should document all the important documents depending on which he arrived at a final conclusion.
Audit is mostly conducted on a subjective basis and it requires the auditor to possess professional judgement and skepticism.
Professional Judgement is used in various stages of audit such as:
1. Selection of sample
2. Identifying the audit risk based on his understanding of entity's business model.
3. Evaluating whether sufficient evidence is obtianed.
These judgements should be based on rationality and not dependence.
Whenever auditor is under the eyes of law or when he is subject to peer review the burden of proof lies with him to prove his declarations on entity's performance.
So it is necessary for an auditor to document all the required documents that assisted the auditor to arrive at his final conclusion.
Expected documents to support an auditor's professional judgement.
1. Evidences obtained either from entity's personnel or external parties.
2. Written representations from those charged with governance.
3. Procedures performed by the team of auditor.
4. Replies given by the management at the time of conducting audit.