Professional Skepticism, Professional Judgement and Applicable Financial Reporting Framework

Professional Skepticism

Professional Skepticism

An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement, and a critical assessment of audit evidence.Professional skepticism includes being alert to, for example:

·         Audit evidence that contradicts other audit evidence obtained.
·         Information that brings into question the reliability of documents and responses to                       inquiries.
·         Conditions that may indicate possible fraud.
·         Circumstances that suggest the need for additional audit procedures.

Professional Judgement

Professional Judgement 

The application of relevant training, knowledge and experience (within the context provided by auditing, accounting and ethical standard) in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement.Professional judgement is essential to the proper conduct of an audit. Professional judgement is necessary in particular regarding decisions about:

·         Materiality and audit risk.
·         The nature, timing and extent of audit procedures.
·         Evaluating whether sufficient appropriate audit evidence has been obtained.
·         The evaluation of management’s judgements in applying the entity’s applicable financial         reporting framework.
·         The drawing of conclusions based on the audit evidence obtained.

Professional Skepticism and Professional Judgement is applied throughout the audit i.e. Planning Stage, During the Audit and Conclusion Stage.

Applicable Financial Reporting Framework

Applicable Financial Reporting Framework

The financial reporting framework adopted by management in the preparation of the financial statements that is acceptable in view of the nature of the entity and the objective of the financial statements, or that is required by law or regulation

Acceptable Financial Reporting Framework

Acceptable financial reporting frameworks

It normally exhibit the following attributes:

a.    Relevance

The information provided in the financial statements is relevant to the nature of the entity and the purpose of the financial statements.

b.    Completeness

Transactions and events, account balances and disclosures that could affect conclusions based on the financial statements are not omitted.

c.    Reliability

The information provided in the financial statements:

       ·         Reflects the economic substance of events and transactions and not merely their                         legal form; and
       ·         Results in reasonably consistent evaluation, measurement, presentation and                               disclosure.

d.    Neutrality

It contributes to information in the financial statements that is free from bias.

e.    Understandability

The information in the financial statements is clear and comprehensive.

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