The Nature Of Auditors ' Professional Scepticism

CAS 300 requires auditors to their audit using a risk based model where the nature, timing and extent of audit procedures are based on the assessed risk of material misstatement. Pickett (2006) argues that for audits to be effective and efficient, much of the audit effort should be focused on areas that are considered to pose the highest audit risk. Additional audit procedures should be linked to individual audit assertions whereas other audit procedures need to be performed as and when needed. Thus, for an audit plan to be put in place, it is necessary for an auditor to come up with a risk profile of the client comprising an understanding of the business operating by the audit client, assess business risk and also perform its preliminary analytical review.

ABSTRACT: The purpose of this teaching case is to expand students’ understanding of the concepts of professional skepticism and independence. The case is based on an actual incident and illustrates the exercise of professional skepticism by a staff auditor who finds himself in the uncomfortable situation of accusing a friend of fraud. The case demonstrates the difficult personal and professional choices that auditors must sometimes make. In analyzing the case, students consider auditor independence rules, as well as the concepts of

Summary: The objective of this article is to clarify the significance of professional skepticism as an essential part of the auditor’s mindset, and to consider the reasons why approaching an audit with an attitude of professional skepticism is becoming increasingly important. The following are three case studies that will concentrate your consideration on what it takes to be a skeptical auditor when performing journal entry testing.

The Model of Trust Enhancement was established to enhance and maintain the public’s trust in the accounting profession. Over the last two decades, the ethics of the accounting profession has been questioned and public trust destabilized, in particular for auditors, due to the Enron debacle. The fact that an auditing firm would assist their clients with publishing an inadequate set of financial statements shows their willingness to violate laws and regulations (Sims & Brinkmann, 2003). According to the textbook, “Because trust is essential, even the appearance of an accountant’s honesty and integrity is important. The auditor, therefore, must not only be trustworthy, but he or she must also appear trustworthy” (Duska, Duska & Ragatz, 2011, p. 116). The majority of statements filed inadequately have a substantial impact on the credibility of the accounting profession as a whole. Sullivan (n.d.10) states that a CPA must possess a high level of trust, by applying professional judgment and enhancing the three trustworthy characteristics (ability, benevolence, and integrity) when resolving accounting ethics dilemmas (slide 3).

Auditor’s direct knowledge- If the auditor knows the evidence is valid, then there is nothing more reliable.

Our textbook defines professional skepticism as follows: Professional skepticism — a questioning mind and a critical examination of audit evidence. The appropriate level of professional skepticism varies depending upon the risks of the particular situation. (Arens, Elder, Beasley, & Jones, 2015, p. 67).

Professional scepticism is an attitude which is adopted by an auditor to conduct the audit. The auditor needs to maintain a questioning mind and seek independent evidence to corroborate information provided by client. In the aspect of professional judgement, an auditor uses the level of expertise, knowledge and training to conduct an audit. The auditor should judge the information source’s reliability and the evidence’s sufficiency. Due care means that auditor needs to apply standards and document each stage of the audit process when conducting an audit. In the case of Kleenmaid, the auditor needs to adopt an attitude of professional scepticism to recognize the possibility that a material misstatement could exist because of fraud. They must remain independent of their client and search for evidence thoroughly to validate information provided by Kleenmaid’s board of directors. Furthermore, the auditor has the responsibility to assess the risk of fraud by considering the incentives and pressures, and opportunities to perpetrate a fraud, and attitudes and rationalisation to justify a fraud. In the case, Kleenmaid had debts of nearly $100 million in 2009, which is the significant incentive or pressure considered by the auditor to commit a fraud. In addition, Kleenmaid operated as an importer and distributor of whitegoods, with 22 outlets, 15 franchises, and 22 staffs. This means the company will have a high volume of

An auditor should keep objectivity at all times. Maire Loughran, a Certified Public Accountant and University Professor, explains “objectivity

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

The Auditors’ responsibility for the detection of fraud is an ongoing issue that is surrounded by much controversy (Gray, Manson and Crawford, 2015). It is believed by many people that Auditors are responsible to detect fraud and have the ability to do something about it, while In fact they have a very limited role in the detection of fraud. The public’s misconception of the auditors roll and what the auditors roll actually is, is referred to as the expectation Gap. In the auditing profession they often have to keep up to date with the up to date standards from the International standards on auditing, these are important, as they are required to keep up with the constant evolving of the rules and what is expected of them. These standards are often referred to as ISA’s, the main focus of these will be ISA 240, this is the standard that covers fraud, and plays a large part in the way auditors do their statements. Throughout this essay we will be able to critically analyse what role the auditors play in the detection of fraud and what the public believe the auditors role is.

Auditors having the appropriate competence and capabilities to perform the audit, and follow ethical requirements, and maintain professional skepticism throughout the audit.

The paramount onus of an auditing professional is conveying reliable information to clients and the public so that they may make imperative, intellectual decisions. For this obligation to be fulfilled, a quality audit must be performed in accordance with generally accepted auditing standards (GAAS). Executing a quality audit necessitates an auditor reasonably assures financial statements are presented fairly in accordance with generally accepted accounting principles (GAAP) and not materially misstated, whether due to errors or fraud. Furthermore, executing a quality audit obliges an auditor to utilize professional skepticism by exercising proficient judgment and proves competency in accounting principles and professional auditing

Professional skepticism is an attitude that includes a questioning mind and a critical assessment of audit evidence.

The presence of an external auditor allows creditors, investors or bankers to use financial statements that have been prepared with confidence. Although it does not guarantee the accuracy of a financial statement, it provides users with some reassurance that a company’s financial statements give a true and fair view of its financial position and its business operations. It also provides credibility, where in business, is a major asset. With credibility, the willingness of investors, bankers and others to relate and undertake business projects with a company increases. Credibility is also important to build positive reputations.

Professional skepticism practices as neutral but discipline approach to detection and investigation. Per SAS No. 1 it suggests that an auditor neither assumers that management is dishonest or assumes unquestionable honesty. Professional skepticism requires fraud examiners to “pull on thread” in which means Red flags are warning signal or something that demands attention or provokes an irate reaction. Red Flag symptoms of fraud may be divided into at least six categories: unexplained accounting anomalies, exploited internal control weaknesses, identified analytical anomalies where non