Professional SkepticismLauren Van Dyke

Section CFebruary 28, 2013

Related Concepts

Independence

Professional SkepticismObjectivity

PCAOB's Definition of Professional Skepticism

Professional Skepticism - "An attitude that includes a questioning mind and a critical assessment of audit evidence."

Staff Audit Practice Alert 10

On December 4, 2012, PCAOB issued an alert that: 1. Criticized recent audit failures2. Cited lack of professional skepticism as a

cause3. Presented reasons4. Offered solutions

When Should Professional Skepticism Be Exercised?

At all points during the audit, but especially:

● Transactions outside normal business● Management judgement used● Reason to consider fraud● Contradictory evidence

Impairments to Professional Skepticism

Incentives and Pressures

Scheduling and Workload Demands

Inappropriate Level of Confidence/Trust in Management

Lack of Knowledge

Consequences

● Insufficient evidence to support claims● Fail to identify misstatements● Fail to address concerns● Legal liability● Damage to reputation

Recommended Measures

● Accept disagreement from audit team● Assist less-experienced staff● Set appropriate compensation incentives● Assign staff according to competency and

availability● Establish clear policies for audit

documentation● Take corrective action when auditors do not

show professional skepticism

Context

● Definition did not change● No research breakthroughs● No recent scandals● Most of the material is commonsense

Why?

Audit Timing

● Issuance Date: December 4, 2012● Audits begin January

Mark Nelson, "A Model and Literature Review of Professional Skepticism in Auditing"

A Matter of Professional Judgement● "Trust, but verify" - PCAOB standard

○ "Neutral" ○ "Presumptive Doubt" - often used in investigative

scenarios, more conservative● Recent shift

"...continued instances in which auditors did not appropriately apply professional skepticism."

Staff Audit Practice Alert 10, PCAOB

Shift in Industry Standards

Neutrality DoubtTrust

Shift in Industry Standards

Neutrality DoubtTrust

PCAOB. "Staff Audit Practice Alert 10." http://pcaobus.org/Standards/QandA/12-04-2012_SAPA_10.pdf. Accessed 24 February 2013."PCAOB Issues Alert Maintaining Auditor Skepticism." Accounting Today. http://www.accountingtoday.com/news/PCAOB-Issues-Alert-Maintaining-Auditor-Skepticism-64882-1.html. Accessed 25 February 2013."Auditor Assessment." http://www.thecaq.org/resources/pdfs/AuditorAssessment.pdf. Accessed 20 February 2013.Nelson, Mark. "A Model and Literature Review of Professional Skepticism in Auditing." Auditing: A Journal of Practice & Theory. Vol. 28, No. 2. November 2009.

Resources