Maintaining professional skepticism during all parts of the audit process is crucial and is required of those performing audits according to professional standards. Professional skepticism must be applied to all areas throughout the year, including planning the audit, performing the fieldwork and maintaining the on-going client relationship during the remainder of the year.

What is Professional Skepticism?

Professional skepticism is an attitude that includes a questioning mind and a critical assessment of audit evidence. Maintaining an attitude of professional skepticism during the entire audit process is crucial to perform an effective audit. Professional skepticism should be applied to each area of the audit process including identifying and assessing the risks of material misstatement, performing tests of controls and substantive procedures to respond to the determined risks and evaluating the results of the audit.

Professional Skepticism during Audit Planning and Fieldwork:

Examples of professional skepticism include: considering what can go wrong during the audit, performing audit procedures to obtain sufficient appropriate evidence rather than merely obtaining the readily available evidence to corroborate management’s assertions and critically evaluating all findings, regardless of whether it agrees or disagrees with management’s assertions.

Professional skepticism is especially important in the areas affected by management’s judgment and decisions. Some areas potentially affected by management’s judgement include related-party transactions and financing transactions. Naturally, management has an expected outcome in these areas and it is crucial that auditors apply both a diligent and critical assessment of all evidence to ensure that contrary decisions should have been made.

Consideration of fraud is also an area of concern that requires professional skepticism. Professional skepticism can be applied to areas of the highest fraud risk by (1) modifying planned audit procedures to find the strongest evidence supporting or disproving an assertion and (2) using third-party sources for confirmation, specialist’s report, or independent documentation for testing.

Professional Skepticism Applied to the Client Relationship:

Those planning and performing the audit have the responsibility to maintain a level of professional skepticism during the audit process, however, this level should continue throughout the entire relationship with the client. Pressure to maintain a positive client relationship can impede the level of skepticism being applied at all times. This pressure is exemplified through the ‘need’ to keep client fees as low as possible, to form a long-term audit engagement relationship, to cross-sell other services and to keep the client satisfied.  Long-term relationships can reduce the level of professional skepticism because auditors place an inappropriate level of trust in management based on past engagements. Additionally, time and cost restraints placed on the auditors make it simpler to justify using easier or more efficient audit testing techniques that may not be the most effective, relevant and reliable.  These potential constraints can lead to the auditor forgetting that they are primarily responsible to company’s investors, not its management.