Enhancing professional skepticism: IESBA improving links to its ethical requirements
Professional skepticism is an important concept that is currently defined in auditing and assurance standards. The concept is also referred to in the Code of Ethics for Professional Accountants of the International Ethics Standards Board for Accountants (IESBA).
Why is this important for Canada? The Canadian profession is committed to including ethical requirements in the Canadian CPA Code of Professional Conduct that are no less stringent than those of the IESBA code.
The IESBA’s project
The IESBA wishes to promote the application of the provisions in the code to enhance the application of professional skepticism in audit and other assurance engagements. It is proposing to supplement the code’s existing few references to professional skepticism with application material that explains how compliance with the code’s fundamental principles (for example, integrity, objectivity and professional competence and due care) supports the exercise of professional skepticism in an audit of financial statements. The IESBA is also exploring, longer term, how the code should address professional skepticism for professional accountants other than those who perform audits and other assurance engagements.
CPA Canada’s response
The CPA Canada response to the IESBA’s exposure draft reacted negatively to the proposed inclusion of professional skepticism application material in the code that is only, at this time, applicable to professional accountants who perform audit, review and other assurance engagements. CPA Canada stated that this is premature, and potentially dilutes the relevance of professional skepticism for professional accountants who perform other professional services, and professional accountants in business. Consequently, CPA Canada believes that the code would be enhanced and made more relevant if it contained professional skepticism material applicable to all professional accountants. These concerns seem to have been supported by a number of other respondents to the IESBA’s exposure draft.
The right way forward
In my view, efforts to enhance an auditor’s understanding of what it means to act with appropriate professional skepticism are helpful. But there can be unintended consequences if the code is not clear, or wording is not aligned between the code and auditing standards. Further, while I can see there is merit in exploring how the concept of professional skepticism applies to accountants broadly, using the same term in the context of all public accounting engagements could be problematic for those engagements that do not involve the provision of assurance. Given these complexities, it is encouraging that the IESBA and International Auditing and Assurance Standards Board (IAASB) are working together with the International Accounting Education Standards Board to address issues in a longer-term project.
In the meantime, the most fruitful ground for enhancing the application of professional skepticism may come from the IAASB’s efforts to focus on professional skepticism on every project, whether it is dealing with quality control, auditing accounting estimates, performing risk assessments or group audits. Embedding professional skepticism into the design of requirements and application material, with an emphasis on how to apply professional skepticism, is where improvements to audit quality can be made.
Keep the conversation going
Can the concept of professional skepticism be applied broadly to all accountants? What are the potential benefits and drawbacks of doing so?
Post a comment below; or email me directly.
Conversations about Audit Quality is designed to create an exchange of ideas on global audit quality developments and issues and their impact in Canada.