The Importance of Professional Scepticism

Scepticism is at the heart of audit; as chartered accountants, our fundamental responsibilities include remaining alert to potential error, bias and misstatement.

Recent scrutiny of audit has focused on concerns that auditors aren’t being sufficiently sceptical and need to do more.

If auditors and other stakeholders are to do more to enhance professional scepticism, we need to consider how. However, thus far, auditors’ views on scepticism have in fact been largely missing from this debate.

The Practitioners’ Take

Our new thought leadership report, Scepticism: The Practitioners’ Take, is therefore very timely.

Based on a series of interviews with practising auditors, training providers and audit regulators, it sets out the views of those with first-hand audit experience and who deal with the pressures of deadlines and budgets. It explores who is responsible for scepticism, how to improve it and what firms are already doing to try and encourage it. The report also contains some important messages for the debate about the future of audit.

I’ve previously blogged about the need to ask uncomfortable questions of ourselves and not shy away from answers we don’t like, to ensure that public confidence in audit is safeguarded. The key messages of this publication are about who needs to ask difficult questions in a given audit, and how they go about it.

Our Findings

•   Professional scepticism is at the heart of what auditors do: without it, the audit has little value, but the urge to use lack of scepticism as a catch-all classification for anything that is wrong in auditing or financial reporting, should be resisted.

•   Most of ICAEW’s members are in business, not practice, and there is a shared responsibility for scepticism: it needs to be exercised by all of our members across the piece, not just auditors. Preparers, in particular, need to exercise scepticism themselves before handing information over to external auditors.

•   An effective sceptic is neither a cynic nor a dupe: exercising scepticism means not accepting the first answer at face value without following it up, even it sounds plausible. It also means not asking questions ad infinitum because real audits have deadlines. It’s about asking the right questions, following up answers and knowing when to move on.

•   Auditor working practices need to support and encourage scepticism in the field: budgets, deadlines, working practices and methodologies should not impede the exercise of scepticism as taught in the classroom. Firms also need to find better ways, including using technology, to teach inexperienced junior staff about what can go wrong.

We will continue to explore this issue, looking for further examples of good practice, considering how preparers and auditors can identify areas where more scepticism needs to be applied, and what to do in such cases.