Exploring Professional Skepticism and Earnings Management in Audits
VerifiedAdded on 2020/04/01
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AI Summary
The assignment examines two pivotal concepts in auditing: professional skepticism and earnings management. Professional skepticism is vital for auditors as it involves a questioning mindset that helps ensure audits are conducted with due diligence, enhancing their reliability. It includes assessing biases, corroborating evidence, and maintaining an attitude of neutrality and doubt when necessary. Earnings management, on the other hand, refers to the methods managers use within accounting standards to influence financial reports to achieve desired outcomes, which can be both ethical (such as timing adjustments) or unethical (like manipulative practices). The analysis highlights the challenges auditors face in detecting earnings management due to its complex and sometimes subjective nature. Additionally, it underscores the importance of auditor independence and robust audit procedures in mitigating these challenges. Discretionary accruals play a significant role here; they allow managers flexibility in financial reporting, which can either inform stakeholders about the company's prospects or mask underlying economic issues through aggressive accounting practices. The study encourages auditors to enhance their skills and knowledge to better navigate these complexities and uphold the quality of financial reporting.
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