The importance off skepticism in performing audits has been recognized from the time the very first auditing standard was implemented (Fullerton and Durtschi, 2012). The recent financial crises and audit failures have caused the profession to reassess and emphasise the importance of skepticism during an audit engagement, ensuring that auditors increase their level of skepticism (Fullerton and Durtschi, 2012). Auditors are now asked to expand their skeptical perspective to the level used by forensic experts, which according to Fullerton and Durtschi (2012) assumes that management is dishonest unless there is evidence to disprove this. The following summary discusses whether a higher level of skepticism by the auditor would enhance audit quality. Professional Skepticism
Before assessing whether a higher level of skepticism would enhance audit quality, it is important to understand what professional skepticism is. According to Fullerton and Durtschi (2012) the early audit standards define skepticism as an attitude that includes a questioning mind and a critical assessment of audit evidence, which was often interpreted as neither assuming managerial honesty nor dishonesty. The IAASB staff question and answers (2012) state that The International Standards on Auditing (ISAs) define professional skepticism as an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence. This explicitly requires auditors to plan and perform an audit with professional skepticism realising that circumstances may exist that cause the financial statements to be materially misstated. The IAASB staff question and answers (2012) do mention that it is difficult to capture the definition of professional skepticism in one single definition, however the ISAs definition helps to understand the important elements of professional skepticism. As stated by the IAASB staff question and answers (2012) professional skepticism is fundamentally a mindset and skeptical mindset drives auditor behavior to adopt a questioning approach when considering information and in forming conclusions. Hence professional skepticism may be closely linked to the fundamental ethical principles of objectivity and an auditor’s independence enhances the auditor’s ability to act with integrity, be objective and maintain an attitude of professional skepticism (IAASB staff question and answers, 2012). Professional skepticism as per the IAASB staff question and answers (2012) also includes; firstly being alert to audit evidence that contradicts other audit evidence obtained or information that brings into question the reliability of documents or responses to inquiries to be used as audit evidence. Secondly it includes being alert to conditions that may indicate possible fraud, and circumstances that suggest the need for audit procedures in addition to those required by the ISAs. Finally it includes a critical assessment of audit evidence, which comprises both information that supports and corroborates management’s assertions, and any information that contradicts such assertions (IAASB staff question and answers, 2012). Professional skepticism plays an important role in the audit and forms an integral part of the auditor’s skill set, as professional skepticism is closely interrelated with professional judgment (IAASB staff question and answers, 2012). Professional skepticism according to the IAASB staff question and answers (2012), facilitates the appropriate exercise of professional judgment by the auditor, particularly regarding decisions about; the nature, timing and extent of audit procedures to be performed, whether sufficient appropriate audit evidence has been obtained and whether more needs to be done to achieve the objectives of the ISAs, the evaluation of management’s judgments in applying the entity’s applicable financial reporting framework and the...
References: 1 Chambers, R. (2011). Drawing the line: from professional scepticism to suspicion. The institute of internal auditors.
2 Fullerton, R.R. & Durtschi, C. (2012). The effect of professional scepticism on the fraud detection skills of internal auditors. UTAH state university.
3 IAASB staff questions and answers, (2012). Professional scepticism in an audit of financial statements. International auditing and assurance standards board.
4 The auditing and assurance bulletin, (2012). Enhancing professional scepticism, Canadian auditing and assurance standards board.
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