An Independent Auditor’s job is to give reasonable assurance that a company’s financial statements give a true and fair view. Reasonable assurance is a high level of assurance but not the absolute level of assurance due to the inherent limitations of an audit. To achieve a high level of assurance, the International Standards of Auditing (ISA) instructs the auditor to perform
professional skepticism throughout the audit. It is essential for auditing to be able to obtain accurate evidence and assess the risk factors rightly. Performing professional skepticism involves having a questioning mind, critically analyzing the audit evidence, being alert to any information or behavior that indicates misstatement – either by fraud or error. It is a behavior that is essentially required to test and verify the authenticity
and preciseness of audit evidence obtained. Without professional skepticism, the audit has low worth and doesn’t provide a high level of assurance by the auditor. Every auditor or accountant must practice professional skepticism religiously, i.e., have a questioning mind. It is a skill used by auditors to ensure that:
Audit planning of every entity varies based on its circumstances and is made from scratch. To opt for the correct audit plan and procedures, the auditors need to have a skeptical mind. Hence, the auditor needs to stay alert, question, and analyze the audit evidence and information received from the management and those charged with governance. ISA 200 requires the external auditor to skeptically evaluate the reliability and truthfulness of the documents and answers to the auditor’s inquiries obtained from management and those charged with governance. Professional skepticism is also used in evaluating the sufficiency and appropriateness of the audit evidence based on the current circumstances of the entity. For example, audit evidence received from the warehouse manager regarding administrative expenses is inappropriate and unreliable. Due to the time constraint of an audit, it is practically impossible for the auditor to verify all the transactions made by an entity throughout the year. Hence, the audit is done on a sample basis, and it depends on the auditor what quantity the audit evidence must be. While auditing, the auditor must use professional skepticism to decide on a sample quantity based on the entity’s circumstances. Uses of professional scepticism:The auditor can accept the information and documents as audit evidence as long as there is no contradictory information. On the off chance that isn’t the case, the auditor shall use professional skepticism, have a questioning and alert mind to investigate the problem and figure out the solution to such contradiction. He shall add further audit procedures to the plan to ensure the issue is resolved. ISA 200 instructs the auditor to keep skeptical behavior during audit even if the auditor’s client has proven to be honest and integral in the past. The auditor shall not disregard the honesty and integrity of the management and those charged with governance yet still maintain a questioning behavior to ensure nothing is overlooked because a possibility of fraud still exists due to changes in circumstance. Conclusion:Professional skepticism facilitates the base of the audit plan and audit procedures. It is crucial to be maintained throughout the audit since it enables the auditor to identify risks of material misstatement and how to respond to it – which is the whole point of the audit. September 6, 2018 | 1 Most of us who trained as auditors never really lose the urge to question numbers. The temptation to ask on what basis they were calculated, to generally prod and poke around, and to make sure that they are what they appear to be, becomes instinctive. Skepticism it not just at the heart of auditing, it is in the heart of most auditors, a fact that is not obvious to outsiders given the various calls for auditors to exercise more skepticism, particularly when the pressures of deadlines and budgets are brought to bear and doing the right thing becomes more of a challenge. Firms are well aware of this. They use the insights of behavioral psychology, particularly as relates to the various forms of bias, to build checks and balances into the system to ensure that skepticism is in fact applied consistently throughout the audit and across the practice. The ICAEW’s report, Scepticism: The Practitioners’ Take,aims to move forward the debate on skepticism by offering insights from real auditors and people who work with them. Based on a series of interviews with practicing auditors, training providers and audit regulators, the report sets out the views of those with first-hand audit experience who deal with the pressures of deadlines and budgets. It explores who is responsible for skepticism, how to improve it, and what firms are already doing to try and encourage it. These are some of the key messages:
ICAEW will continue to explore this issue, including seeking further examples of ‘what good looks like’, in terms of how preparers and auditors identify areas in which more skepticism needs to be applied, and what they do in such cases that they would not do otherwise. Scepticism: The Practitioners’ Take is available at https://www.icaew.com/technical/audit-and-assurance/scepticism-the-practitioners-take *This is an excerpt from a previously published article in the ICAEW publication Audit & Beyond
Related ArticlesWhy is professional scepticism important in audit?The need for professional skepticism in an audit cannot be overemphasized. Professional skepticism is an essential attitude that enhances the auditor's ability to identify and respond to conditions that may indicate possible misstatement. It includes a critical assessment of audit evidence.
Which is an example of professional skepticism?A20 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 to be used as audit evidence. Conditions that may indicate possible fraud.
How does the auditor apply professional scepticism?The auditor should also apply professional scepticism when forming the auditor's opinion, by considering the overall sufficiency of evidence to support the audit opinion, and by evaluating whether the financial statements overall are a fair presentation of underlying transactions and events.
What are the key elements of professional skepticism?The three elements of professional skepticism — auditor attributes, auditor mindset, and auditor actions — permeate the entire audit process and are integral to audit quality.
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