Professional Scepticism Case Study

The need for Professional Scepticism (PS) has become a paramount part of the auditing process. From judging critical evidence to being the watchdog on potential conditions that may cause material misstatement, the auditor plays a critical role. PS is also known as professional judgement. The Australian Auditing Standards ASA200 (AUASB 2015) defines PS as, “an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.” This essay will discuss PS and how it is an essential skill to audit quality and their role performance. We will use peer reviewed journals to aide our discussion with how the concept of PS applies to auditors.

Jonathon Grenier researched auditors who have a specialised industry experience. Grenier highlighted a pattern of recognition ability for explanation of non-misstatement, leading to a reduction of PS. These auditors preempt an explanation rather that looking at each particular set of circumstances with scepticism (2016). Auditors who encounter frequently explained misstatements will collect a knowledge bank of justifications, enabling them to be able to explain away overt ratio variations. However, these ratio indicators should highlight to the auditor that further investigation or evidence is required before an explanation is accepted or rejected. Industry focused auditors tend to have an over confidence in regards to their ability to explain misstatements. They are then less likely to exercise PS in recognizing areas that need further auditing. They are reliant on their superior knowledge to conduct the audit rather than exercising their required PS (Grenier 2016). While conducting an audit, it is likely that without their use of PS, they will fail to detect areas of well concealed fraudulent activities or low probability misstatements (Grenier