Written by Ben Coull F.C.A., Director Synectic Group

Too often, our audits become an exercise in blindly following checklists and programs that have either been built up over prior years or supplied as part of standard templates or manuals sold by technical content providers or professional organisations. While compliance with fundamental principles of auditing standards is vital to the credibility of the audit profession, it is equally important that auditors apply their own knowledge and experience in forming an opinion. So why is professional judgement so important? And what are the benefits that can be obtained through the proper application of professional judgement?

ASA 200.16 “The auditor shall exercise professional judgement in planning and performing an audit of a financial report.”

The risk assessment and planning phase of the audit is critical in ensuring that appropriate judgements are made to ensure that all critical risks are captured and adequately addressed. Equally importantly, this is where the auditor can avoid wasted time on trivial or low-risk areas of the financial statements. It is not always the largest balances in the financial statements that present the largest risks, but the complexity and level of subjectivity involved in determining the balance. Nor should we be conducting procedures just because we can or because they are easy to do and bulk up the file. The auditor’s efforts should always be focused on ensuring that the critical risks of misstatement have been covered.

No two clients are created equal. In particular, many of the clients I deal with are smaller entities that do not have complex structures and accounting issues. Subjecting these clients to the same level of intensive scrutiny that would be applied to a large listed company is both pointless and counterproductive. Recommendations to clients for improvements to their systems need to take into account what is achievable and relevant in their circumstances. This requires and understanding of the organisation and empathy with the people that work within it.

Use of audit tools such as AuditFlow are a great way of achieving consistency and compliance in your audit files. Just don’t get sucked into thinking that these tools will do all your work for you. Filling out every possible checklist and form in the template will not necessarily ensure that you have covered the risks, but it will pretty well guarantee massive write-offs on the job and a disgruntled client. Be critical and selective about the forms and documents that will be of most relevant to the audit, and don’t be afraid to tinker with the documents to tailor them to suit the needs of your clients.

Clearly, proper exercise of professional judgement requires experience and can’t be left to junior staff to work out on their own. Building the capacity for effective professional judgement within your audit team requires two key aspects: selection of people with intelligence and confidence; and communication by senior staff of their knowledge and experience. I have found that the best auditors are often those that have had experience in other facets of business and can apply real life experience to the audit process.

In these times of increasing cost consciousness by most businesses and not-for-profits, auditors need to ensure that they are delivering a cost-effective service that is seen by clients as having value. Through the application of professional judgement to improve the focus of the audit and provide effective and relevant recommendations, it is possible to deliver significant benefits to your clients.

About Ben:

Ben holds qualifications as a Registered Company Auditor and Registered SMSF Auditor, and is also accredited by the Institute of Chartered Accountants (ICAA ) as a SMSF Specialist. From 20 years in public practice, he has developed extensive experience in financial reporting and audit across a broad range of commercial and not-for-profit organisations.

Ben has a passion for excellence in client service and the benefits that come from a high quality audit. He believes in pragmatic, relevant advice that helps clients improve their operations, governance and internal controls. For Ben, an audit is not just a compliance obligation, but can also be a valuable tool in driving optimum results from your business.

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