ACCA Advanced Audit and Assurance (AAA) Practice Exam

In what scenario would an auditor need to exercise professional judgment?

1. When evaluating employee satisfaction

2. When determining audit materiality and risk

3. During customer feedback analysis

4. In evaluating marketing effectiveness

The correct answer is: When determining audit materiality and risk

Exercising professional judgment is crucial in various aspects of auditing, particularly when determining audit materiality and risk. In this context, an auditor must assess the nature, timing, and extent of audit procedures required to gather sufficient appropriate audit evidence. This involves making decisions about what constitutes significant findings, understanding the client's business environment, and evaluating risks, which can often be subjective and require a high level of expertise and experience. Determining materiality involves considering quantitative factors, such as monetary thresholds, as well as qualitative factors that may affect how financial statement users perceive the information. Moreover, assessing risk involves understanding both inherent and control risks that could affect the audit outcome, which is a complex function of the auditor’s judgment based on their knowledge and experience in the specific industry and context of the audit. Evaluating employee satisfaction, customer feedback analysis, and assessing marketing effectiveness, while important for business operations, do not typically fall within the realm of professional judgment required in auditing. These scenarios are more focused on stakeholder engagement and systems analysis rather than on the critical decision-making processes inherent in audit practice. Therefore, the need for professional judgment in the context of materiality and risk assessment is paramount in ensuring an effective audit outcome.