1- Applying Professional Skepticism:
This topic explains:

• The concept of professional skepticism
• Why applying professional skepticism throughout the audit is necessary
• Documenting professional skepticism

ISA Requirement:

The auditor shall plan and perform an audit with professional skepticism recognizing that circumstances may exist that cause the financial statements to be materially misstated (ISA 200.15).

 ISA Guidance:

• Professional skepticism includes being alert to, for example (ISA 200.A18):
• Audit evidence that contradicts other audit evidence obtained
• Information that brings into question the reliability of documents and responses to inquiries to be used as audit evidence
• Conditions that may indicate possible fraud
• Maintaining professional skepticism throughout the audit is necessary if the auditor is, for example, to reduce the risks of (ISA 200.A19):
• Overlooking unusual circumstances
• Over generalizing when drawing conclusions from audit observations
• Using inappropriate assumptions in determining the nature, timing and extent of the audit procedures and evaluating the results thereof

Professional skepticism is necessary to the critical assessment of audit evidence. This includes questioning contradictory audit evidence and the reliability of documents and responses to inquiries and other information obtained from management and those charged with governance. It also includes consideration of the sufficiency and appropriateness of audit evidence obtained in the light of the circumstances, for example, in the case where fraud risk factors exist and a single document, of a nature that is susceptible to fraud, is the sole supporting evidence for a material financial statement amount (ISA 200.A20).

The auditor may accept records and documents as genuine unless the auditor has reason to believe the contrary. Nevertheless, the auditor is required to consider the reliability of information to be used as audit evidence. In cases of doubt about the reliability of information or indications of possible fraud (for example, if conditions identified during the audit cause the auditor to believe that a document may not be authentic or that terms in a document may have been falsified), the ISAs require that the auditor investigate further and determine what modifications or additions to audit procedures are necessary to resolve the matter (ISA 200.A21).

The auditor cannot be expected to disregard past experience of the honesty and integrity of the entity’s management and those charged with governance. Nevertheless, a belief that management and those charged with governance are honest and have integrity does not relieve the auditor of the need to maintain professional skepticism or allow the auditor to be satisfied with less than persuasive audit evidence when obtaining reasonable assurance (ISA 200.A22).

2- Applying Professional Judgment:

This topic explains:

•    The concept of professional judgment
•    Why applying professional judgment throughout the audit is necessary

ISA Requirement:
The auditor shall exercise professional judgment in planning and performing an audit of financial statements (ISA 200.16).
 ISA Guidance:
The distinguishing feature of the professional judgment expected of an auditor is that it is exercised by an auditor whose training, knowledge and experience have assisted in developing the necessary competencies to achieve reasonable judgments (ISA 200.A24).
Professional judgment is essential to the proper conduct of an audit. This is because interpretation of relevant ethical requirements and the ISAs and the informed decisions required throughout the audit cannot be made without the application of relevant knowledge and experience to the facts and circumstances. Professional judgment is necessary in particular regarding decisions about (ISA 200.A23):
•    Materiality and audit risk
•    The nature, timing and extent of audit procedures used to meet the requirements of the ISAs and gather audit evidence
•    Evaluating whether sufficient appropriate audit evidence has been obtained, and whether more needs to be done to achieve the objectives of the ISAs and thereby, the overall objectives of the auditor.
•    The evaluation of management's judgments in applying the entity’s applicable financial reporting framework
•    The drawing of conclusions based on the audit evidence obtained, for example, assessing the reasonableness of the estimates made by management in preparing the financial statements
The exercise of professional judgment in any particular case is based on the facts and circumstances that are known by the auditor.  Consultation on difficult or contentious matters during the course of the audit, both within the engagement team and between the engagement team and others at the appropriate level within or outside the firm, such as that required by ISA 220 assist the auditor in making informed and reasonable judgments (ISA 200.A25).
Professional judgment can be evaluated based on whether the judgment reached reflects a competent application of auditing and accounting principles and is appropriate in the light of, and consistent with, the facts and circumstances that were known to the auditor up to the date of the auditor’s report (ISA 200.A26).
Professional judgment needs to be exercised throughout the audit. It also needs to be appropriately documented. In this regard, the auditor is required to prepare audit documentation sufficient to enable an experienced auditor, having no previous connection with the audit, to understand the significant professional judgments made in reaching conclusions on significant matters arising during the audit. Professional judgment is not to be used as the justification for decisions that are not otherwise supported by the facts and circumstances of the engagement or sufficient appropriate audit evidence (ISA 200.A27).