What Is The Role Of Professional Skepticism In Auditing Financial Audit Case Study

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Question1: What is the role of professional skepticism in auditing financial statements? Do you think that the auditors were skeptical enough in evaluating the operations of Imperial Valley? Explain. Professional skepticism in auditing financial statement involves the auditor having the necessary skill set and attitude that includes a questioning mind, making a critical assessment of the audit evidence, careful observation and looking beyond the obvious, being diligent, alert, persistent and courageous paying close attention to situations which may involve misstatement due to fraud. Professional skepticism is critical in an audit because it facilitates professional judgment and it also provides the evidence that the audit was planned and performed in accordance with generally accepted auditing standards (Mintz & Morris, 2014). The role of professional skepticism in auditing financial statements is to facilitate professional judgment regarding decisions including:
- The nature, timing, and extent of the audit procedures to perform to reduce the risk of material misstatements to an appropriate level,
- Whether
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For example, the auditors did perform the audit and documented their findings, yet did not challenge management to obtain supporting evidence with regards to the loan collateral, the collectability of loans, and weakness in internal controls. Furthermore, with regards to the weakness in internal controls, the auditors were concerned, made recommendations yet were unable to give voice to values and influence management. For instance, management argued that the five percent reserve for loan losses that was proposed by the auditors was too high and was able to convince them to agree to a two percent loan
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