Good Article Review About Professional Skepticism

Published: 2021-07-02 12:30:04
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Professional Skepticism means an approach towards accounting which includes a questioning mind and being in a position which questions a possibility of fraud, errors or misstatement and is a critical evaluation of audit evidence. It is essential for a quality audit. Professional skepticism is a skill which is very similar to professional judgment and helps in providing an opinion for an audit engagement. Professional skepticism helps in asking questions which make sure that any information provided is true. It is an approach which is similar to a judgment and auditors with professional skepticism tend to make good decisions as well as provide correct information on the financial reports. Basically professional skepticism is an attitude of questioning. This attitude helps gain information of the organization. With a questioning mind, they are able to gain all the required information and ensure that they look at both sides of an issue. Professional skepticism is also defined as a critical assessment of the financial statements. An attitude of a questioning mind helps avoid any material misstatements or occurrence of fraud. It also ensures a transparency in the financial statements and provides accurate information in the reports. Auditors with professional skepticism are highly acclaimed and tend to provide good opinions on the statements. Professional skepticism can be achieved through continuous training and practice. Professional skepticism increases with practical experience. Depending on the approach of the auditor, professional skepticism ensures a clear and informative opinion on the financial statements of the organization.
Any failure to apply professional skepticism to audits will provide less information and appropriate evidence to the auditor. Skepticism failures will make it difficult to discover material errors or misstatements. In case of uncertainty and financing transactions it is important to maintain a professional skepticism. If an audit is conducted without skepticism, the main purpose of audit is not achieved and the value of audit to investors is reduced.
After corporate scandals which led to a loss of millions of dollars for the investors, there has been an extreme awareness and importance of professional skepticism. The auditors skepticism will ensure that proper guidelines are followed and the required disclosures are made. Where IFRS is silent on certain issues, professional skepticism helps. Pressure on auditors is also increasing manifold which means they are expected to gather the required information and make the correct decisions or provide a correct opinion on the financial statements. Along with professional knowledge and personal experience, professional skepticism will help an auditor know a lot about the financial information of the organization. It is gaining importance because of the increase in manipulation of accounts and instances of fraud. This has led to the auditors requirement of training and professional skepticism. Increasing chances of fraud are seen in related party disclosures, going concern, accounting estimates and compliance with laws and regulations. Professional skepticism is applied in these four areas regularly. To know about the financial stability of the organization and to gather in depth information of the functions of the organization, professional skepticism is very important. An auditor with professional skepticism will be able to look at all sides of the information and ensure that the chances of fraud are reduced to the minimum. Adequate disclosures and following of accounting policies will ensure that true and correct information is represented by the auditor. International transactions of various organizations are increasing which has subsequently increased the chances of fraud and misrepresentation. Hence it is essential for an auditor to approach an organization with professional skepticism.
The article suggests that an auditor should conduct an audit with the possibility of a fraud or misrepresentation in mind regardless of the past history of honesty and disclosure by the organization. It suggest a perspective doubt in place of a neutral doubt on the organization. Academic literature takes a more presumptive doubt perspective where an auditor is expected to assume a possibility of material misstatement or occurrence of fraud until evidence has been gathered that the financial statements are not materially misstated. Due to the increasing manipulations, the auditor is required to gather more information using professional skepticism instead of forming an opinion based on client provided information. The paper also shows a model which relates to all the aspects of auditing. It shows that audit training and professional experience along with traits and incentives can be used for application of professional skepticism. Evidential input can be further gathered and scrutinized using professional skepticism, which can be followed by skeptical action which will lead to outcome. To be able to apply professional skepticism, the auditor is required to have thorough knowledge of the risks associated with the organization. He should also have knowledge of audit and evidence relation. Professional skepticism is required to be applied so as to reduce any chances of fraud. Hence the auditor is required to have knowledge about fraud and about the frequency of errors. Studies suggest that auditors are seen to be more skeptical when various risk factors are present or when the organization has faced a fraud or event of a material misstatement in the past. Experienced auditors are likely to have a detailed approach and are likely to combine information which has probability of high risk errors.
Hurtt has developed a scale on professional skepticism which states six different characteristics of skeptics which are based apart from knowledge and traits. The six distinct characteristics include suspension of judgment which says that skeptics do not accept whatever information provided to them, instead they approach the problem with an open mind and carry their own research. Questioning mind is another characteristic of a skeptic which includes probing into the matter until relevant proof and information has been gathered. Search for knowledge is a characteristic of skeptics which keeps them going ahead in the field. It is represented by a general curiosity towards the field and the subject. Self-confidence and self-determination are two aspects which keep the skeptic motivated and involved in the work. The skeptic is not convinced about a matter until the required information is gathered and analyzed. Inter personal understanding by the auditors is a distinct characteristic of a skeptic. They consider the attitude as well as opportunities of the client and have a good understanding of the same. The Hurtt score is related with the number of queries and contradictions detected by the auditors in their audit process.
The incentives received by the auditor also affect the professional skepticism of the auditor. Other than the incentive of audit fees, the auditor is affected by the tenure he has spent with the client, importance of the client to the auditor and the understanding between them. Many organizations prefer auditors who are skeptics but not those who are extremely skeptic because this will lead to lengthening of the audit. They prefer skeptics who will take action when necessary and be aggressive in the approach if required. Professional ethics helps encourage measured skepticism in an organization.
The level of skepticism can be altered with a change in incentives and training. In certain situations where a top down approach is followed, it might happen that the auditors over look some information. This can be avoided with professional judgment and training. Further research can be conducted to determine the structural form of the model. The research can be out to use today for the application of professional skepticism in all fields. Auditors are required to understand the importance of skepticism as compared to the information handed over to them by the organization. Probing into the matter and asking questions will ensure that the chances of fraud are reduced or completely avoided. Ethics and skepticism should go hand in hand. An auditor has to follow professional ethics which help him in auditing along with carrying a curious attitude towards the assignment.
With increasing high profile scandals, it is required for every auditor to have professional skepticism which will ensure that he gathers the required information and makes the right decision. Manipulation of accounts and misrepresentations can be avoided with this attitude. What is required is professional knowledge and experience which will increase professional skepticism towards the work. Incentives should be altered and related to the risks of the organization. All auditors should approach the work with an open mind and questioning attitude. This will ensure that the required information is gathered.
Works Cited
Enhancing Professional Skepticism. (2012). Auditing and Assurance Bulletin, 1-5.
Penning, G. (2014, May 04). Influence: The auditor's Professional Skepticism. Retrieved from Accountancy SA:
Penning, G. (2014, May 1). The Auditor's Professional Skepticism. Retrieved from High Beam Research:
Professional Skepticism. (n.d.). Retrieved from Ready Ratios:
Tysiac, K. (2012, Dec 04). PCAOB alert says audit must be conducted with skeptical eye. Retrieved from Journal of Accountancy:

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