With the use of judgement in financial reporting increasing it is becoming crucial for accountants and auditors to develop necessary skills in professional scepticism. But what is professional scepticism? And more importantly, how do we implement it successfully in our audits?
ICAEW defines professional scepticism 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." So it is time for audits to not be based solely on factual evidence and it is the job of the auditor to ask questions and make decisions based on management and their own opinion.
Unfortunately it is difficult to document that an appropriate attitude has been applied, but audit firms must develop methods for demonstrating that they are sceptical in their audit processes. ICAEW suggests we must step back and look at the overall picture and consider the following questions:
Lisa Weaver, who spent 4 years in audit practice, with clients ranging from major charities, multi-national organisations and listed companies to football clubs, has authored a new course for accountingpd.net, Professional Scepticism. Click on the link to find out more about the course.
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