Criticism Of Professional Skepticism

Kathleen Ng

ACCT 4501W

Research Article 1

Professional Skepticism

According to the generally accepted auditing standards, there are ten basic standards that has to be followed when conducting an audit. The ten basic standards are broken down into three main categories: general, fieldwork, and reporting. In the general category, one of the standards is professional care. Professional care, also referred to as professional skepticism, can be defined as that an auditor should perform an audit with objectivity and without bias, while still maintaining skepticism. Auditors have been criticized on their lack of professional skepticism when conducting an audit and the overreliance on management’s representation of evidence.

These criticisms were

Some of these reasons were: the auditor’s confidence or trust in management enticed them to accept management’s assertions rather than test them; there were pressure in time that led to heavy workload. Besides these reasons, the report also showed that certain audit deficiencies occurred due to professional skepticism being a contributing factor. These audit deficiencies include insufficient testing of completeness and accuracy of source documents, premature sign-offs on audits, and acceptance of management’s explanation without obtaining evidence to confirm these explanations.

Another report released by the PCAOB in December of 2008 also criticized on the lack of professional skepticism of auditors. This report summarized the inspections on firms that audited 100 or fewer public companies during 2004 to 2007. This report showed that three of the Big Four U.S. auditing firms was not applying an appropriate level of professional skepticism in conducting their audits. These

reports and the ongoing concern of lack of professional skepticism led to meetings and conferences to address these concerns in 2013 and 2014. In 2014, during an annual auditing conference held at

Such reasons include incentives, pressures from management, the development of confidence and trust in management, or due to workload demands. But besides reasons of incentives and pressures, a reason may be that people may be susceptible to trust others. There is evidence that supports this idea of people trusting others. In a 2013 study, it suggests that presumptive trust is in the mentality of auditors, and other studies also shows that people tend to have a mindset of presumptive trust.

To improve the application of professional skepticism and mindset, the PCAOB made several recommendations in SAPA 10, report notes, and speeches by board members. One recommendation provided by the PCAOB is to set the tone at the top; if appropriate amount of professional skepticism is done by top management of the audit firm, these acts can be carried down to the staff. Another recommendation is for auditors to be alert when performing the audit, there may be information found that would raise questions about the reliability of evidence and information that may indicate fraud risk. It may be a good idea, during the planning phase, to look at which specific types of evidence that should