Professional scepticism
The exercise of professional scepticism by auditors in the current environment is now more important than ever.
In brief
- Auditors must exercise professional judgment, which requires professional scepticism.
- Lack of professional scepticism by auditors has become a key focus of regulators worldwide.
- There are practical ways auditors and firms can develop a clear-eyed and questioning attitude.
Performing a quality audit in the current uncertain climate will require auditors to exercise heightened levels of professional judgement and professional scepticism in order to deal effectively with the range of challenges that COVID 19 is posing for both clients and audit practices. Regulators not only expect auditors to maintain an appropriate level of professional scepticism during every audit, but also expect to see documentation demonstrating how professional scepticism has been applied.
What is professional scepticism?
To show professional scepticism means:
- having a questioning mind
- being alert to anything that may indicate misstatement due to error or fraud
- critically assessing audit evidence.
What do regulators say about professional scepticism
Because professional scepticism is integral to professional judgment, it’s essential to high-quality auditing. Yet audit inspections by the Australian Securities & Investments Commission (ASIC) and the New Zealand Financial Markets Authority (FMA) have raised concerns about the level of scepticism being shown by auditors.
ASIC’s focus area in their 2019 audit inspection report requires audit firms to consider: “Whether appropriate professional scepticism is exercised about the sufficiency and appropriateness of audit evidence, accounting treatments and accounting estimates.”
FMA’s 2019 Audit Quality Monitoring Report stated: “Audit firms need to give consideration to the users of financial statements when carrying out audits. Professional scepticism is not always applied well by auditors or communicated to directors.”
What factors drive scepticism?
Many factors influence the level of professional scepticism shown by auditors and engagement teams, including:
- personal attitudes and ethical values
- levels of education, training and experience, and therefore overall competence
- the actions of the firm’s leadership and the engagement partner
- the culture, incentives and business environment of the audit firm.
How can I boost professional scepticism?
- Have the self-confidence and strength of character to maintain an enquiring mind.
- Suspend trust: rationally and logically consider all the likely options, not just the one that is being put in front of you.
- Resist the temptation to just accept the easy answer.
- Go beyond simply providing evidence to support disclosures. Consider alternative disclosures or viewpoints as well.
The Art of Professional scepticism series
The following 5 guides make up the series:
- The Art of Professional Scepticism: an overview of the series
- Art of Relationship Building guide
- Art of Problem Solving guide
- The Art of Enquiry: A guide for auditors on asking questions
- Spotlight on specific audit areas (the case studies)
Section on how CA ANZ can help?
eLearning available on professional scepticism. What do you need to produce a quality audit? Professional scepticism! Strengthen your ability to consistently apply sceptical behaviour to every audit and understand how to overcome challenges and avoid judgement traps.
Guides and resources on professional scepticism
Related downloads
- How firms conceptualise and apply Professional Scepticism in an audit context (pdf, 0.2 mb)
- AUASB Bulletin: Professional Scepticism in an Audit of a Financial Report (pdf, 0.7 mb)
- Practical ways to improve the exercise and documentation of Professional Scepticism in an ISA audit (pdf, 0.2 mb)
- Art of Professional Scepticism: An overview of the series (PDF, 0.1 mb)
