Professional skepticism: Time to apply it beyond the audit?

Should the concept of professional skepticism be extended beyond audit and assurance engagements?

Professional skepticism is a well-known concept in the assurance world. There are discussions globally around whether this concept needs to be considered more broadly—for example, by professional accountants in business, members of an audit committee or board of directors.

Where professional skepticism is used today

The concept is used extensively in auditing, review and other assurance standards and is defined 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. It is not used in non-assurance standards dealing with agreed-upon procedures or compilation engagements.

In the CPA Harmonized Rule of Professional Conduct, I found one reference to the concept, in the context of intimidation threats to the independence of a member or firm involved in assurance or specified procedures engagements.

Why is this an issue?

There appear to be varying views about what the concept of professional skepticism means, who it should apply to and how it should be articulated in standards. Some argue that all accountants should apply a professional skepticism mindset to their activities, whereas others see the concept as solely applying to assurance practitioners given that the common definition refers to assessing “evidence.” They believe that other accountants apply the more commonly understood term “skepticism” as opposed to professional skepticism.

There has also been commentary on the fact that audit inspection reports often refer to a lack of professional skepticism as a cause of a finding. What some see as a lack of professional skepticism, others see as a lack of application of fundamental ethical principles — integrity, objectivity, professional competence or due care. This brings up the question: how are professional skepticism and the fundamental ethical principles related? A clearer articulation of the relationship between them could be helpful in addressing root causes of findings.

What is being done?

Because the concept of professional skepticism is relevant to international standard-setting boards that deal with assurance, educational and ethical standards, the boards are taking a coordinated approach in evaluating whether it may be appropriate to extend the concept beyond audit and assurance engagements. To this end, they are also examining whether a common description explaining the interrelationships among key concepts in the literature should be developed and, if so, how this description could be articulated.

Keep the conversation going

What are your thoughts? Do you agree that the concept of professional skepticism applies to all professional accountants? Or would you be concerned about the possibility of (a) diluting the concept from an assurance perspective and (b) having a concept that is overly burdensome for other accountants?

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.

About the Author

Eric Turner, CPA, CA

Director, Auditing and Assurance Standards, CPA Canada

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