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Professional Skepticism: Definition And Characteristics

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Introduction

Professional skepticism in auditing refers to “an attitude that includes a questioning mind and a critical assessment of audit evidence” and is at the foundation of the profession. Its importance has been underlined multiple times since auditing standards codification. Professional skepticism can be viewed as a lens through which auditors evaluate evidence and risk throughout the audit process (Ciołek, 2017, p. 34).

Examples from my experience, reflection on the scores obtained for the 6 characteristics of skepticism.

Questioning Mind

While shopping online a question always strikes in my mind, whether the information provided about the product is genuine i.e. based on the price of the Mobile I can analyze the features the mobile can have and what’s the best time to buy the mobile to get maximum discounts and offers like black Friday deals and end of financial year deals.

Suspension of Judgement

When I come across any mistakes made by my friends/family, I don’t directly quarrel with them until I have a shred of conclusive evidence that he or she is involved and is the person behind it. I am more than 80% of the times successful in making the right judgment by being patient in finding the evidence.

Search for Knowledge

While working on an individual or group assignment, I always find myself curious and interested in doing the work allocated to me by doing as much research as possible to attain the right knowledge of the topic.

Interpersonal Understanding

While working in a group, I always try to present the work with best of my interest but while doing that sometimes I tend to slightly misunderstand or disagree with other group members ideas and information. I also feel that having total trust in someone’s work is also not integral as anyone can make mistakes and no one’s 100% reliable in doing their work accurately in a group.

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Self-Confidence

While doing any activity/task which either I don’t want to or I find difficulty in doing it, then I just try to make my mind to believe I have the talent to do it. This helps me in gaining confidence in myself and often works out well for me. Example to show my self- confidence is the state of mind I have while entering an exam hall that no matter what the questions will be asked, I will give my best shot and will not give up until and unless I finish my exam.

Self-Determining

I am not very self-determining as I mostly require a second opinion or advice to decide. Like while pursuing my post-graduation study I was very much confused in deciding which university would be the best for me and had to take help from my uncle. So, by this experience, I know that I am not completely independent in making decisions for myself.

Although, I tend to learn from my experience that I need to make independent decisions rather than being managed and dependent on someone for my commitment.

The positive effects

A model is developed and tested that characterizes the client-acceptance decisions as a process of risk evaluation and risk adaptation. The model proposes that auditors will evaluate client- related risks and use that evaluation to determine if the audit firm will suffer a loss on theengagement via a lack of engagement profitability or future litigation. The model proposes that auditors will adapt to the client-acceptance risks by using 3 strategies: 1. screening clients based on their risk characteristics, 2. screening clients based on the audit firm’s risk of loss on the engagement, and 3. more proactively adapting using strategies including adjusting the audit fee, making plans about necessary audit evidence, making plans about personnel assignment, and/or adjusting the amount of data collected during the client-acceptance process (Johnstone, 2000).

My example is based on the above theory, firstly as an auditor, I would analyze the risk involved in doing the audit for the client. Then, I will apply professional skepticism characteristics like Questioning mind to analyze the client’s business operation and evaluate various internal control system run by the client, Suspension of judgment to not receive a report without complete verification, and take adequate time and not rush in making decisions, Search for knowledge helps auditor a lot as the more the information and data is acquired during the audit, more easier the true and fair view of audit opinion can be reported, Interpersonal understanding is useful in recognizing whether the client is providing all the information required for the audit keeping aside all the relations and interest between the auditor and the client, Using self-confidence and self-determination to rely less on clients work and have the confidence to investigate, inspect, and analyze the audit evidence proactively. Hence by following all the above skepticism is an indicator of positive effect on professional skepticism for client’s acceptance.

The negative effects

Emphasis on auditor skepticism attitude has attracted audit regulators in line with cases of fraud increasing currently. However, the explanation of skepticism traits among auditors is still lacking. The validity of the Hurtt skepticism scale in the context of the different audit work requirement requires further examination. A factor analysis is conducted to validate the suitability of the instrument based on Malaysian data. The result found that five skepticism traits are relevant except for suspension of judgment. The suspension of judgment trait may be irrelevant since respondents are required to allocate more time to make audit decisions and may delay audit work. This indicates that the respondents may not likely to possess such a trait because they are burdened with numerous audit tasks that must be completed by a deadline (B.V, 2015, pp. 68-75).

My example is based on the above theory while conducting an audit there are various challenges faced by an auditor to comply with all the of audit procedures. There is also not enough time to emphasis on all the characteristics of professional skepticism. In my experience, while complying with all the characteristics might inversely affect clients acceptance because the over-application for risk assessment may increase the cost of the audit and reduce the profits of shareholders as the client has to pay more for the audit which is deducted from clients business profit. Another way of looking at this is if as an auditor I might exercise with all high- level skepticism but can only help the client in meeting societies expectations against the client and badly fail to benefit the client which will affect the continuance of future audit work with the client.

References

  1. B.V, E. (2015). Retrieved from https://pdf.sciencedirectassets.com/282136/1-s2.0- S2212567115X00116/1-s2.0-S2212567115010837/main.pdf?X-Amz-Security-Token=AgoJb3JpZ2luX2VjEEsaCXVzLWVhc3QtMSJHMEUCIQCPvSqcXRBTknn1%2FnwbzKaPAdkfIr5Oq1msY6%2FrVXSIAAIgUQ8q6hXCMryzR9NhkSGmr3LAH8RM7irelTUtuLnB
  2. Ciołek, M. (2017). Research Papers of the Wroclaw University of Economics / Prace Naukowe Uniwersytetu Ekonomicznego we Wroclawiu . 2017, Issue 474, p33-40. 8p.
  3. Johnstone, K. M. (2000, March). Auditing A Journal of Practice & Theory.
  4. www.pcaobus.org. (n.d.). Retrieved from Public Company Accounting Oversight Board: https://pcaobus.org/Standards/Archived/PreReorgStandards/Pages/AU316.aspx

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Professional Skepticism: Definition And Characteristics. (2022, February 17). Edubirdie. Retrieved November 29, 2022, from https://edubirdie.com/examples/professional-skepticism-definition-and-characteristics/
“Professional Skepticism: Definition And Characteristics.” Edubirdie, 17 Feb. 2022, edubirdie.com/examples/professional-skepticism-definition-and-characteristics/
Professional Skepticism: Definition And Characteristics. [online]. Available at: <https://edubirdie.com/examples/professional-skepticism-definition-and-characteristics/> [Accessed 29 Nov. 2022].
Professional Skepticism: Definition And Characteristics [Internet]. Edubirdie. 2022 Feb 17 [cited 2022 Nov 29]. Available from: https://edubirdie.com/examples/professional-skepticism-definition-and-characteristics/
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