Professional skepticism and why it matters to
audit stakeholders
In auditing, the concept of professional skepticism is ubiquitous. Just
as a Jedi in Star Wars is constantly trying to hone his
understanding of the “force”, an auditor is constantly crafting his or her ability to apply professional
skepticism. It is professional skepticism that provides the foundation for decision-making when
conducting an attestation engagement.
A brief definition
The professional standards define professional skepticism as “an
attitude that includes a questioning mind, being alert to conditions that may indicate possible
misstatement due to fraud or error, and a critical assessment of audit evidence.” Given this definition,
one quickly realizes that professional skepticism can’t be easily measured. Nor is it something that is
cultivated overnight. It is a skill developed over time and a skill that auditors should constantly build and
refine.
Recently, the extent to which professional skepticism is being
employed has gained a lot of criticism. Specifically, regulatory bodies argue that auditors are not
skeptical enough in carrying out their duties. However, as noted in the white paper titled Scepticism: The Practitioners’ Take, published by the
Institute of Chartered Accountants in England and Wales, simply asking for more skepticism is not a
practical solution to this issue, nor is it necessarily always desirable. There is an inevitable tug of war
between professional skepticism and audit efficiency. The more skeptical the auditor, typically, the more
time it takes to complete the audit.
Why does it matter? Audit
quality.
First and foremost, how your auditor applies professional skepticism
to your audit directly impacts the quality of their service. Applying an appropriate level of professional
skepticism enhances the likelihood the auditor will understand your industry, lines of business, business
processes, and any nuances that make your company different from others, as it naturally causes the
auditor to ask questions that may otherwise go unasked.
Applying skepticism
internally
By its definition, professional skepticism is a concept that specifically
applies to auditors, and is not on point when it comes to other audit stakeholders. This is because the
definition implies that the individual applying professional skepticism is independent from the information
he or she is analyzing. Other audit stakeholders, such as members of management or the board of
directors, are naturally advocates for the organizations they manage and direct and therefore can’t be
considered independent, whereas an auditor is required to remain independent.
However, rather than audit stakeholders applying professional
skepticism as such, these other stakeholders should apply an impartial and diligent mindset to their work
and the information they review. This allows the audit stakeholder to remain an advocate for his or her
organization, while applying critical skills similar to those applied in the exercise of professional skepticism.
This nuanced distinction is necessary to maintain the limited scope to which the definition of professional
skepticism applies: the auditor.
It is also important to be critical of your own work, and never
become complacent. This may be the most difficult type of skepticism to apply, as most of us do not
like to have our work criticized. However, critically reviewing one’s own work, essentially as an informal
first level of review, will allow you to take a step back and consider it from a different vantage point,
which may in turn help detect errors otherwise left unnoticed. Essentially, you should both consider
evidence that supports the initial conclusion and evidence that may be contradictory to that
conclusion.
The discussion in auditing circles about professional skepticism and
how to appropriately apply it continues. It is a challenging notion that’s difficult to adequately
articulate.
Source: Adapted from https://www.berrydunn.com/news-
detail/professional-skepticism-and-why-it-matters-to-audit-stakeholders