What is professional scepticism in audit?
Professional skepticism is an attitude that includes a questioning mind, being alert to conditions that may indicate a possible deviation or misstatement due to error or fraud, and a critical assessment of evidence. (CAS 200.13(l) and CSAE 3001.14(t)) Show Applying professional skepticismAll assurance engagements Professional skepticism is relevant and necessary throughout all assurance engagements. The following table provides examples of the areas where professional skepticism is particularly important:
Annual audits In addition to the examples identified for all assurance engagements above, the following are other examples of areas where professional skepticism is particularly important when performing annual audits:
Why professional skepticism is important Professional skepticism plays a fundamentally important role in the audit, and forms an integral part of the auditor’s skill set. It facilitates the appropriate exercise of professional judgment, particularly regarding decisions about:
The application of professional skepticism enhances the effectiveness of an audit procedure and of its application and reduces the possibility that we might select an inappropriate audit procedure, misapply an appropriate audit procedure, or misinterpret the audit results. Emphasizing importance of professional skepticism Professional skepticism within the engagement team is influenced both by the actions of the engagement leader and other members of the engagement team. The actions of the engagement leader and appropriate messages to other members of the engagement team need to emphasize that quality is essential in performing audit engagements and the importance to audit quality of, for example, the engagement team’s ability to raise concerns without fear of reprisals and in issuing auditor’s reports that are appropriate in the circumstances. An ideal opportunity to address and emphasize with the engagement team the importance of maintaining professional skepticism throughout the audit is at a team meeting early on in the planning of the engagement. The engagement leader may further emphasize the importance of professional skepticism when taking responsibility for:
While activities at the firm level and engagement level contribute to the mindset of professional skepticism, it is nevertheless the responsibility of each individual auditor to maintain an attitude of professional skepticism. Documenting professional skepticism Given that professional skepticism is a state of mind, we may not document every aspect of how we applied skepticism throughout the audit. Nevertheless, audit documentation remains critical in evidencing professional skepticism because it provides evidence that the audit was planned and performed in accordance with relevant assurance standards. As explained above, it is important to apply professional skepticism throughout the audit and document this accordingly, including when considering significant matters. Professional skepticism is often demonstrated in the various discussions held with the audit team, management, and those charged with governance. That is why it is important that we properly document such discussions to demonstrate how professional skepticism was applied. Examples of circumstances where documentation is particularly important include:
Examples of how professional skepticism can be effectively documented at each stage of the audit include, but are not limited to the following:
Documentation in specific areas Examples of how professional skepticism can be demonstrated in specific areas: All assurance engagements
Annual audits In addition to the examples identified for all assurance engagements above, the following are other examples of how professional skepticism can be demonstrated in specific areas of an annual audit:
Why is professional scepticism important in audit?The need for professional skepticism in an audit cannot be overemphasized. Professional skepticism is an essential attitude that enhances the auditor's ability to identify and respond to conditions that may indicate possible misstatement. It includes a critical assessment of audit evidence.
What is an example of professional skepticism?A20 Professional skepticism includes being alert to, for example: Audit evidence that contradicts other audit evidence obtained. Information that brings into question the reliability of documents and responses to inquiries to be used as audit evidence. Conditions that may indicate possible fraud.
How does the auditor apply professional scepticism?The auditor should also apply professional scepticism when forming the auditor's opinion, by considering the overall sufficiency of evidence to support the audit opinion, and by evaluating whether the financial statements overall are a fair presentation of underlying transactions and events.
What are the six elements of professional skepticism?The Center for Audit Quality described six characteristics of skepticism: a questioning mind, suspension of judgment until appropriate evidence is obtained, a desire to search for knowledge and corroborate information, an understanding that people's motivation and perceptions may lead them to provide biased or ...
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