Professional Skepticism PDF

Running head: PROFESSIONAL SCEPTICISM
Professional Scepticism
Name of the Student
Name of the University
Author’s Note

1PROFESSIONAL SCEPTICISM
Introduction and Discussion of the Concept of Professional Scepticism
Professional scepticism is considered as a crucial aspect in the auditing profession and
this refers to the state of mind of the auditors that is ready for the circumstances that notices the
errors, questions and different financial events at the time to conduct the assurance engagement
(Adnan and Kiswanto 2017). In short, it can be considered as a skill of auditors like professional
judgment that alerts them for any specific circumstance. In fact, professional scepticism is an
approach of the auditors of their interrogative mind that makes the auditors in asking question for
determining the future outcomes. Therefore, the auditors can measure every influence of the
acquired information through their questioning mind (Marnet, Barone and Gwilliam 2018).
Professional scepticism also helps the auditors in asking questions to the audit clients that are
helpful in making critical examination of the financial proceedings in the presence of strong
audit evidences. Professional scepticism has been provided with a wider scope other than just the
questioning attitude in IAS (UK) 200 Overall Objectives of the Independent Auditor and the
Conduct of an Audit in Accordance with International Standards on Auditing (UK). In IAS (UK)
200, the definition of professional scepticism is given as the essential assessment of the obtained
audit evidences. Alike professional judgement, it is necessary for the auditors to apply
professional scepticism at the time to conduct assurance engagement (Thompson 2018).
According to Para A20 of IAS (UK) 200, professional scepticism includes to be alert to
contradicting audit evidences, information questioning the dependability of responses and
documents that the auditors utilise as audit evidence, possible fraud situations and circumstances
that specifies towards the essentiality for additional audit processes apart from the steps
mentioned in IASs (UK) (frc.org.uk 2020). Para A21 of IAS (UK) 200 also mentions that it is

2PROFESSIONAL SCEPTICISM
needed to uphold professional scepticism in the audit for reducing the risk of neglecting
abnormal situations, over simplifying while concluding from audit observations and utilizing
correct assumptions for the determination of nature, timing and degree of audit procedures
(frc.org.uk 2020). In line with the additional requirement of ISA (UK) 200, there is a greater
need of using professional scepticism as a mean to improve the capability of the auditors in the
identification of the risk of material misstatement and to appropriately react to the identified risks
(frc.org.uk 2020). There is a close association of professional scepticism with the elementary
ethical requirements of audit independence and audit objectivity while this also has linkage with
applying professional judgment by the auditors. An audit will not be of high quality in case it is
carried out by not applying professional scepticism. Correct application of professional
scepticism confirms that the auditors do not overlook odd situations or events while conducting
the audit operations. Application of professional scepticism makes the auditors cautious of the
chances of errors and this helps the auditors in guarding the financial statements from all types of
material misstatements.
Different stages of auditing starting from accepting the client to different audit
procedures require applying professional scepticism by the auditors. In case of accepting the
engagement, the auditors are required to consider whether the audit client’s management team
maintain integrity and whether there is any substances that can negatively influence the auditor’s
capability to act with professional scepticism (Ball, Tyler and Wells 2015). After that,
performing risk assessment procedures demands the auditors to be sceptical in the audit planning
stage. In the stage of acquiring audit evidence, application of professional scepticism enables the
auditors in challenging the client’s management on the complex and subjective aspects that
involve high extent of judgment used by the management; this also enables the auditors in

3PROFESSIONAL SCEPTICISM
considering the satisfactoriness and dependability of audit evidence when assessing the risk of
fraud (Out and Elias 2017). In case of evidence evaluation, appropriate application of
professional scepticism makes the auditors able in critical assessment of acquired audit evidence
so that they can identify the conflicting evidences that may weaken the adequacy and correctness
of the acquired evidences. Application of professional scepticism also assists the auditors to form
the appropriate audit opinion through the consideration of overall competence of the acquired
audit evidences for supporting the audit opinion. Eventually, the overall risk of material
misstatement can be significantly reduced by the proper application of professional scepticism
while the overall quality of audit can also be enhanced by this (Winardi and Pernama 2017). All
these show the significance of professional scepticism in the audit profession.
Discussion on Current Thinking in respect of the Need for Professional Scepticism
The above discussion shows that the sceptical mind helps the auditors in developing a
questioning mind, being attentive to the occurrence of possible material misstatements because
of errors and critical assessment of audit evidences. Major increase in the significance of
professional scepticism in audit can be seen in the presence of certain reasons and key
professional bodies like the International Auditing and Assurance Standards Board (IAASB) and
others have emphasized on this increasing need of professional scepticism. The need for
professional scepticism has increased dramatically because of the augmented utilization of
judgment and subjectivity in the financial reporting related decisions of the clients’ managements
(Kim and Trotman 2015). This is because of the application of International Financial Reporting
Standard (IFRS) that is mainly grounded on principles while requiring the application of key
judgments in preparing the financial statements. The same needs to be considered at the time to
make decisions in financial accounting treatments. Another key reason for the increase in need