Professional skepticism is widely viewed as essential to audit quality. Using quality academic references discuss the concept of professional skepticism as it applies to auditors.
It is a requirement that you only refer to quality/credible references. This can be researched published in:
• Scholarly accounting and business journals
• Government and accounting/auditor firm websites &/or textbooks (Auditing and Assurance in Australia, 6th Edition)
• You must not use any direct quotes
• Unacceptable references include Wikipedia, Investopedia, web pages, and lecture notes.
• The quality of journals can be assessed by referring to the Australian Council of Business Deans (ABDC) 2010 journal rankings (A*, A, B, C in order of declining quality)
https://www.abdc.edu.au/pages/abdc-journal-quality-list-2013.html
Assessment criteria
• Professional presentation
• Introduction
• Response to essay task
• Conclusion
• Referencing.
Professional skepticism is a mindset that combines a critical appraisal of audit evidence and a questioning mentality. Because of a conviction in management’s honesty, the auditor should not be content with less than convincing proof while exercising professional skepticism. Professional skepticism is a key idea in auditing theory and practice. It has been found in practically all existing auditing standards, but the best approach to describe it remains a mystery. Researchers and regulators agree that the idea is important, but they disagree on how to define and assess it. It’s also difficult to tell if a lack of skepticism is the root of audit flaws and what reasons led to that lack of skepticism. Also, professional skepticism is an important part of an internal auditor’s duty of care and it applies to all engagements. It’s a mindset that comprises a critical examination of the appropriateness and adequacy of audit evidence as well as a questioning mentality. Healthy skepticism, which involves questioning your assumptions and creating doubt, can be beneficial. Doubt becomes mistrust and paranoia as a result of cynicism. Avoid falling into that trap. Become an excellent skeptic by being able to take the finest available knowledge and determining what facts you require to be proven incorrect.
What would enhance the application of skepticism in the field?
External auditors exercise skepticism, and boards and audit committees have the opportunity to add to that suspicion. Recent guidelines improve the auditor’s disclosure of pertinent financial and other information to the audit committee, which should improve two-way communication and make roles and duties easier to grasp. Some fundamental threats to auditor professional skepticism will be mitigated as the external audit firm interacts with boards and committees that effectively represent the interests of investors and that understand, transparently communicate, and are accountable for their role in overseeing and fostering high-quality auditing. Some fundamental threats to auditor professional skepticism will be mitigated as the external audit firm interacts with boards and committees that effectively represent the interests of investors and that understand, transparently communicate, and are accountable for their role in overseeing and fostering high-quality auditing, and other efforts to improve professional skepticism will be more efficacious. Clarified role and strengthening the independence of the audit committee acting for the benefit of the investing public, audit committee financial reporting expertise, and more transparent audit committee communication are three areas where boards and audit committees can improve auditor professional skepticism.
The Audit Committee’s Role Has Been Clarified, and Its Independence Has Been Strengthened.
In some countries, progress has been made in establishing the audit committee as the audit client. These are significant efforts in the face of professional distrust among auditors. Through its objective attitude and desire to assist the auditor’s duty in gathering adequate, suitable evidence to support a judgment that the financial statements and related disclosures are honestly presented, the audit committee can affect auditors’ skepticism. The auditor’s customer is the audit committee, not management, which can be stated in writing in the charter and orally to the auditor and management.
Financial Reporting Expertise of Audit Committees.
Audit committees facilitate auditor professional skepticism by probing management, internal auditors, and external auditors with probing questions that help directors identify and understand issues, as well as appropriate follow-up on how those issues have been investigated, evaluated, and ultimately handled. Audit committees with at least one member who qualifies as a financial reporting expert, with adequate knowledge and expertise to understand complicated financial accounting and auditing principles in order to apply professional skepticism effectively, are more likely to perform well. Guidance may be produced to assist audit committees in making an objective assessment of the industry, business, reporting, and fraud risks, as well as a high-level understanding of how to assess whether the audit plan adequately tackles relevant risks. Professional associations for audit committees could provide training in best practices and provide guides to help measure audit committee success.
Communication and Accountability of the Audit Committee should be More Transparent.
Audit committees are in charge of overseeing, fostering, and encouraging the quality of auditing that occurs within the entity for which they have fiduciary responsibilities. Audit committees, on the other hand, are today mostly responsible for conveying their duties and obligations to other relevant stakeholders. The audit committee’s sense of accountability and obligation for oversight, as well as the encouragement of high-quality auditing, should be enhanced through greater openness and open communication. Such communication may motivate audit committees to continually endeavor to fulfill their central duty as advocates for investors and creditors as they oversee internal and external auditors’ efforts and professional skepticism.
Example: A Historical Episode of Professional Skepticism
On an audit for a customer named Thomascolor Incorporated, a company promoting a lens that would allow color movies to be created with standard black-and-white film, the SEC charged H&S and long-time partner Andrew Stewart with a lack of professionalism in May 1948. The company’s proprietary method had the potential to revolutionize Hollywood’s production routines, but the organization was cash-strapped, and competition was tough because Technicolor was already a well-established technique. Despite the fact that the main questions in the case were matters of judgment supported by independent experts, H&S and Stewart were held liable for professional misconduct. ASR 73 further said that good faith is not a defense where the accountants’ conduct is so weak that it demonstrates their failure to provide professional undertakings with the level of care and investigation that they need under the circumstances. In today’s terminology, it appears that the SEC decided that the auditors were not skeptical enough.
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