Professional skepticism in a remote working environment: Advice for auditors
The COVID-19 pandemic has transformed the way we do our jobs. Not only have government lockdowns and social-distancing guidelines resulted in a shift to remote work for many CPAs, the way audits are performed has also changed.
This shift highlights both the importance of professional skepticism as well as the practical challenges you face as auditors when it comes to applying it in a remote environment. Before the pandemic, applying professional skepticism was a recurring theme in regulatory assessments as well as in supporting high-quality audits. The impact of the pandemic on your clients (including people, processes and technology) and how audits are performed, coupled with the current uncertainty in the economy, only further underscore its importance. That's why I recently sat down with Karen Higgins, audit and assurance partner at Deloitte Canada—from the comfort of our own homes, of course—to discuss the topic of professional skepticism in a remote working environment and to hear some first-hand examples in practice. Karen is the chair of the Canadian Public Accountability Board's (CPAB)'s Professional Skepticism Working Group, so she had a lot of great information to share.
Questions answered on the podcast:
- What is professional skepticism and how can auditors demonstrate it?
- How does auditor bias impact professional skepticism and what are some common examples of unconscious bias?
- What are some challenges in applying professional skepticism and are there common patterns or trends?
- Has the prevalence of virtual offices and the rise of remote work for auditors throughout the pandemic altered the landscape? Or are the core challenges still common, even as our context has shifted?
- What could auditors put into practice in 2021 and beyond?
- How can we ensure coaching and team supervision work well in a remote environment? What are some strategies to implement virtual coaching and supervision for better outcomes?
A candid Q&A on skepticism
As an auditor, you know you need to apply professional skepticism, but what does that really mean? How can you teach junior staff to be skeptical, especially if you aren't physically with them? How does the exponential use of automated tools and techniques affect the application of skepticism on the audit?
In our podcast discussion, Karen openly shared her perspectives and offered a great deal of reminders, tips and practical examples. Below are some highlights.
What is professional skepticism?
The Canadian Auditing Standards (CAS) define professional skepticism 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.” In our discussion, we talked about professional skepticism as a mindset as well as why it’s key that auditors stay curious without jumping to conclusions.
We also talked about auditor biases, and more specifically, unconscious biases, and the importance of both acknowledging and working to overcome them. In the podcast, Karen shares a real-world example that highlights the impact of bias when assessing the appropriateness of the going concern assumption, something that is especially critical right now. In a time of significant economic uncertainty, she also illustrates the importance of challenging management’s forecasted cash flows and the key assumptions incorporated into valuation models and impairment tests. While the impact of the pandemic on each of your clients will depend on individual facts and circumstances, in many cases, assumptions based on historical trends may not be appropriate.
Tips for applying professional skepticism on remote audits and in the current economic environment
A good part of the podcast discussion covered challenges in applying skepticism when auditing remotely, such as access to people and information, and how the nature and form of audit evidence may change in a remote environment. Karen shared ideas for how to overcome these challenges, including the types of questions she tells her teams to ask their clients when audit evidence looks different than expected, as well as possible changes to the composition of the engagement team. We also talked about tips for addressing coaching and supervision challenges, including changes to how client interviews are conducted, as well as ways to leverage collaboration tools and other techniques, such as screen sharing when coaching and supervising engagement teams.
Perhaps the most valuable part of our discussion centres on the practical examples Karen shared on how to apply skepticism, especially in an uncertain economic environment. Auditors are often reminded to exercise professional skepticism, but there are not many practical examples to demonstrate how this can be done, especially during a pandemic and beyond. Here are some of her tips:
- Carefully consider the direction of management bias
- Challenge representations from management when they say that procedures, balances and controls are "the same as last year"
- Pay attention not only to the information management is disclosing, but also what may be missing
- Re-assess how substantive analytical procedures and variance analyses are performed
- Find ways to maximize virtual "face-to-face" audit procedures
- Keep the reliability of electronic audit evidence top of mind
For the full interview and more tips, please listen to the podcast.
In the current environment, the importance of applying professional skepticism cannot be overemphasized. As you perform audit engagements in 2021, I encourage you to think about how you and your teams are addressing this topic. With an expectation that remote work is unlikely to disappear, I anticipate that lessons learned through these uncertain times will continue to be relevant beyond the pandemic.
Additional resources
CPA Canada
External
- Additional COVID-19 FAQs for Auditors (Australian Auditing and Assurance Standards Board)
- Section I: Professional Skepticism
- Webinar 2 - Performing the Audit in the Pandemic Environment (International Federation of Accountants)
- Summary of Key Takeaways, pages 2-5
NOTE: CPA Canada does not review, develop or approve resources external organizations have created. CPA Canada accepts no responsibility or liability that might occur directly or indirectly as a consequence of the use, application or reliance on these external resources.
Keep the conversation going
Are you finding the application of professional skepticism more challenging in a remote environment? What challenges are you most commonly running up against? Do your audit teams understand the importance of being skeptical and demonstrating skepticism? With the exponential increase in emerging technologies and the expanding sources of information to be used as audit evidence, do you feel more is needed in CAS to enhance the auditor’s ability to maintain an appropriate level of professional skepticism? 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.
Disclaimer
The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.