Preview

Does skepticism by the auditor would enhance audit quality

Better Essays
Open Document
Open Document
1442 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Does skepticism by the auditor would enhance audit quality
Introduction
The importance off skepticism in performing audits has been recognized from the time the very first auditing standard was implemented (Fullerton and Durtschi, 2012). The recent financial crises and audit failures have caused the profession to reassess and emphasise the importance of skepticism during an audit engagement, ensuring that auditors increase their level of skepticism (Fullerton and Durtschi, 2012). Auditors are now asked to expand their skeptical perspective to the level used by forensic experts, which according to Fullerton and Durtschi (2012) assumes that management is dishonest unless there is evidence to disprove this. The following summary discusses whether a higher level of skepticism by the auditor would enhance audit quality.
Professional Skepticism
Before assessing whether a higher level of skepticism would enhance audit quality, it is important to understand what professional skepticism is. According to Fullerton and Durtschi (2012) the early audit standards define skepticism as an attitude that includes a questioning mind and a critical assessment of audit evidence, which was often interpreted as neither assuming managerial honesty nor dishonesty.
The IAASB staff question and answers (2012) state that The International Standards on Auditing (ISAs) 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. This explicitly requires auditors to plan and perform an audit with professional skepticism realising that circumstances may exist that cause the financial statements to be materially misstated.
The IAASB staff question and answers (2012) do mention that it is difficult to capture the definition of professional skepticism in one single definition, however the ISAs definition helps to understand the important elements of professional skepticism.
As stated by the IAASB



References: 1 Chambers, R. (2011). Drawing the line: from professional scepticism to suspicion. The institute of internal auditors. 2 Fullerton, R.R. & Durtschi, C. (2012). The effect of professional scepticism on the fraud detection skills of internal auditors. UTAH state university. 3 IAASB staff questions and answers, (2012). Professional scepticism in an audit of financial statements. International auditing and assurance standards board. 4 The auditing and assurance bulletin, (2012). Enhancing professional scepticism, Canadian auditing and assurance standards board.

You May Also Find These Documents Helpful

  • Powerful Essays

    Cited: Arens, A. A., Elder, R. J., & Beasley, M. S. (2013). Auditing and Assurance Services. Old Tappan, NJ: Pearson Education.…

    • 1794 Words
    • 8 Pages
    Powerful Essays
  • Better Essays

    Case Study 7.8

    • 1786 Words
    • 8 Pages

    This critical factor is relevant to an auditor’s character of professional skepticism, in which the auditor should never automatically or fully conclude that all things (financial statements, accounts, clients, etc.) are 100 percent accurate or truthful, and should be investigated thoroughly too its’ full extent.…

    • 1786 Words
    • 8 Pages
    Better Essays
  • Powerful Essays

    Audit Report Apollo Shoes

    • 1058 Words
    • 5 Pages

    Arens, A. A., Elder, R. J., & Beasley, M. S. (2012). Auditing and assurance services: An…

    • 1058 Words
    • 5 Pages
    Powerful Essays
  • Good Essays

    If You Need

    • 883 Words
    • 4 Pages

    3. One condition that could have limited Will’s skepticism was auditing the workplace of his best friend’s wife, Jess. Will was at times hesitant to heavily question Jess for fear of damaging their personal relationship. Other conditions that may have limited Will’s skepticism were his inexperience, receiving reasonable explanations for missing documents, and the advice of the audit partner to expect imperfection. Had Will ignored professional skepticism, he would have overlooked patterns and ignored evidence of fraud.…

    • 883 Words
    • 4 Pages
    Good Essays
  • Powerful Essays

    ETH501 Adelphia Case

    • 1519 Words
    • 7 Pages

    References: 1. Barlaup, K., Hanne, I. D., & Stuart, I. (2009). Restoring trust in auditing: Ethical discernment and the Adelphia scandal. Managerial Auditing Journal, 24(2), 183-203. Retrieved on October 12, 2013.…

    • 1519 Words
    • 7 Pages
    Powerful Essays
  • Better Essays

    Phar Case Study

    • 1004 Words
    • 3 Pages

    d) It is not appropriate for auditors to trust executives of a client. AU section 230, auditors should exercise “due professional care in the performance of work”, hence apply professional skepticism. The auditor should be impartial to the level of management’s honesty and pursue factual evidence to support findings and conclusions.…

    • 1004 Words
    • 3 Pages
    Better Essays
  • Good Essays

    Today’s auditors play a crucial role in business and society. They are expected to be intellectually honest to perform an audit with an independent mind for presenting unbiased information and to recognize that they are hired to protect the interests of outsiders. Additional, accountants must not only be competent in the provision of professional services but also must cooperate with other members to improve the art of accounting. The final word for the accountants is that they must be complete compliance for the SOX without looking around for finding any chances being a…

    • 738 Words
    • 3 Pages
    Good Essays
  • Good Essays

    AICPA Ethical Principles

    • 847 Words
    • 4 Pages

    Again, auditors have a vital role in serving their clients and the public. Even if the auditor has worked for a client for 20 years, they have to treat each engagement as a new account and proceed with a certain degree of professional skepticism (Schiff, 2007). Auditors have to assume cheating or violation of laws can happen at any time with any client. Because auditors have no control over the information that is presented to them, there is plenty of room for dishonesty. Auditors are trained to detect tax fraud, which is a form of tax evasion. Some examples of what auditors find are a business with two sets of books, no receipts, and checks that have been altered to increase revenue. The Internal Revenue Manual instructs auditors who suspects their clients of tax fraud to contact the IRS criminal investigation…

    • 847 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    However, there is a controversial issue of whether auditors should be responsible for detecting client fraud. AU Section 110(Responsibilities and Functions of the Independent Auditor) indicates that “the auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.” In other words, auditors are not expected to provide absolute assurance financial statements because auditors do not examine every transaction and event. The public, however, expect auditor to guarantee all material misstatements. While users who use the reported financial statements expect all illegal issues such as fraud to be detected, auditors are more likely to consider misstatements in the financial statements reported by management.…

    • 447 Words
    • 2 Pages
    Satisfactory Essays
  • Better Essays

    PCAOB describes professional skepticism as a general duty of care that needs to be applied by the auditor throughout the duration of the audit engagement. Professional skepticism involves the auditor having a clear and questioning mind regarding the assertions that are presented by management or other client personnel. The auditor is instructed to not take the words or data presented by management as sufficient and appropriate audit evidence but rather the auditor needs to thoroughly audit the evidence with a questioning mind to achieve reasonable assurance about the persuasiveness of the evidence. Skepticism is composed of three elements; auditor attributes, mindset and actions. The PCAOB instructs the auditor to always question evidence presented by the auditor for the probability of loss, fraud or financial misstatement.…

    • 2049 Words
    • 6 Pages
    Better Essays
  • Better Essays

    Assurance is very much like an audit except that it usually is used to verify a certain financial issue project. As with all attestation functions, independence is the backbone of an assurance procedure. The difference is that assurance reports are not…

    • 1093 Words
    • 5 Pages
    Better Essays
  • Better Essays

    In some instances, the auditor may need to obtain, in conjunction with the entity or independently, audit evidence in the form of reports, opinions, valuations and statements of an expert (specialist). The auditor’s education and experience enable the auditor to be knowledgeable about accounting and auditing matters, however, an auditor is not expected to have the expertise of a person trained for or qualified to engage in the practice of another profession or occupation.…

    • 1142 Words
    • 5 Pages
    Better Essays
  • Powerful Essays

    “Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria: Auditing should be done by a competent and independent third person” (Arens and Loebbecke 1988). The auditor in an audit opinion, certifies that the financial statements represent a true and fair view and are prepared in accordance with GAAP (Generally Accepted Accounting Principle) followed by the industry.…

    • 3829 Words
    • 16 Pages
    Powerful Essays
  • Powerful Essays

    dghdgdg

    • 911 Words
    • 4 Pages

    existing auditing standards and code of ethics in Singapore apply to the case. Answer the…

    • 911 Words
    • 4 Pages
    Powerful Essays
  • Satisfactory Essays

    3. The auditor's responses to the assessed risks of material misstatement, particularly fraud risks, should involve the application of professional skepticism in gathering and evaluating audit evidence. Therefore, Andersen’s final decision was not…

    • 529 Words
    • 3 Pages
    Satisfactory Essays