Importance of Professional Judgment

The data analyses indicate the importance of professional judgment in making audit decisions.

In audit practice, auditors exercise professional judgment in all phases of an audit.

Specifically, the exercise of professional judgment helps auditor make audit decisions in these following process:

• In audit planning, because auditors cannot obtain all information, they need to judge based a certain information, then exercise judgment to make decisions for audit strategies.

• In audit fieldwork, auditors need to judge on potential risks (of each accounts and transactions) to make decisions for the choosing of appropriate procedures of each accounts.

• In audit concluding, auditors need to judge on the overall evaluation of the audited financial statements, then make decisions relating to auditor’s opinion.

Although judgment is subjective, it is very important. Auditors usually exercise their professional judgment in every phases of audit processes. Thus, professional judgment is crucial in auditing.

Professional judgment has important impact to decision making in auditing.

Although judgment is subjective, it is very important. Auditors must attempt to attain more knowledge and information to improve the objectiveness of judgments (Interviewee 14).

Professional judgment is frequently exercised at all phases of auditing process.

Chapter 4 – Data Interpretation from Grounded Theory

Auditors exercise their professional judgment frequently, e.g., from the client accepting, audit planning, fieldwork, or reporting. At the first stage of an audit, auditors must professionally judge whether they can accept the audit client or not. Then, they need to exercise their professional judgment in making audit plan and performing the plan in audit fieldwork. In reporting, they still need to exercise professional judgment in making decisions on the issuance of audit opinions and the disclosure of information (Interviewee 23).

In planning, auditors cannot have all obvious information, they need to assume and exercise judgment to make appropriate audit strategies based on a certain amount of available information. In audit fieldwork, they need to judge (e.g., potential risks for each account) to perform appropriate procedures for each account. It means that they don’t need to check all transactions but focus on significant items by using professional judgment (Interviewee 7).

The exercise of professional judgment happens from the initial step to the last one. For example, for client acceptance, the in-charged auditors need to judge whether they can accept client or not. Next, in designing audit strategy, doing the fieldwork, or reporting, auditors must use their professional judgment to support and complete their tasks. However, the usage depends on case by case (Interview 25).

Because the accounting and auditing use risk-based approach, auditors usually deal with situations involving risks and uncertainties. Therefore, they must exercise professional judgment frequently. If an auditor who don’t have good judgment ability, it is difficult for him/her to in charge a high position, e.g., manager or partner (Interviewee 3).

Professional judgment is crucial since it is applied frequently. Auditors need to make judgment in all steps of an audit process. All audit team members need to have a certain level of this judgment ability. Although an audit assistant, who often in charges simple tasks, also need to make judgment in their tasks, such as choosing a threshold for sampling or testing. Judgment may be improved through practical experience. If an auditor hasn’t good judgment, he may do their jobs ineffectively with many tasks rather than others (Interviewee 16).

Chapter 4 – Data Interpretation from Grounded Theory

Normally, there are two approaches to make a decision. If we have obvious and sufficient evidence for the examined issue, we can make proper decision by evidence-based approach.

Otherwise, we need to judge on the reasonableness of the existing circumstances.

In decision making, knowledge is the first important factor that guides our thinking. By using our knowledge, we may have two ways to make decisions.

First, we can make decision based on clear evidence if possible. However, when we think the current evidence are insufficient, we need to judge, e.g., judge practical situations, inside rationales, or (even) the existing evidence, and so on. Sometimes, we many use both evidence-based and judgment-based to make an appropriate decision (Interviewee 22).

The exercise of professional judgment of each audit varies in accordance with in-charged positions and the executed phases of auditing process.

Although all audit team members need to exercise professional judgment to perform their tasks, professional judgment becomes more important to high-level auditors, especially from managers to partners. To audit assistants, the professional judgment is usually applied to deal with simple tasks. The major things to junior level is to closely follow audit procedures (Interviewee 21).

Besides, professional judgment helps auditors in dealing with their tasks effectively and efficiently.

Professional judgment helps auditor reduce the workload. Exercising good judgment, auditors may focus on crucial or significant items. Then, they only need to perform a certain important procedures or steps but still make appropriate decisions and ensure the audit quality. In contrast, if they don’t have good judgment or high confidence on our judgment, they need to do more steps with high workload to improve our confidence on judgment (Interviewee 20).

The usage of the obtained information or available knowledge may be inadequate occasionally. To make a sound decision in auditing, auditors are required to exercise their professional judgment carefully to consider the reasonableness of facing issues. By using professional judgment, auditors

Chapter 4 – Data Interpretation from Grounded Theory

possibly recognize the rationale of the issues and take a course of proper action (Interviewee 13).