Экономика/ 7. Учет и аудит

Tokhtarova I.N., Moiseeva F.A.

Donetsk National University of Economics and Trade

Named After Mikhailo Tugan-Baranovsky

Professional Skepticism

One of the burning problems of external audit in Ukraine nowadays is understanding and using in practice such category as “professional skepticism”.

Professional skepticism is a key element of a quality audit. International Standard on Auditing 200 “Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing” (ISA 200) deals with the term and essence of professional skepticism. According to ISA 200 professional skepticism includes being alert to, for example:

- audit evidence that contradicts other audit evidence obtained;

- conditions that may indicate possible fraud;

- information that brings into question the reliability of documents and responses to inquiries to be used as audit evidence;

- circumstances that suggest the need for audit procedures in addition to

those required by the ISAs.

Maintaining professional skepticism throughout the audit is necessary if the

auditor is, for example, to reduce the risks of:

- overlooking unusual circumstances.

- over generalizing when drawing conclusions from audit observations.

- using inappropriate assumptions in determining the nature, timing and

extent of the audit procedures and evaluating the results thereof.

The matter of fact is that professional skepticism is necessary to the critical assessment of audit evidence. This includes questioning contradictory audit evidence and the reliability of documents and responses to inquiries and other information obtained from management and those charged with governance. It also includes consideration of the sufficiency and appropriateness of audit evidence obtained in the light of the circumstances, for example, in the case where fraud risk factors exist and a single document, of a nature that is susceptible to fraud, is the sole supporting evidence for a material financial statement amount.

The ISA 200 emphasizes that the auditor may accept records and documents as genuine unless the auditor has reason to believe the contrary. Nevertheless, the auditor is required to consider the reliability of information to be used as audit evidence. In cases of doubt about the reliability of information or indications of possible fraud (for example, if conditions identified during the audit cause the auditor to believe that a document may not be authentic or that terms in a document may have been falsified), the ISAs require that the auditor investigate further and determine what modifications or additions to audit procedures are necessary to resolve the matter.

It should be noted, that the auditor cannot be expected to disregard past experience of the honesty and integrity of the entity’s management and those charged with governance. Nevertheless, a belief that management and those charged with governance are honest and have integrity does not relieve the auditor of the need to maintain professional skepticism or allow the auditor to be satisfied with less than persuasive audit evidence when obtaining reasonable assurance [1].

Without knowing that they are doing so, some auditors find a way to “back down” from valued clients to some extent. Perhaps they do not press for as probing or as time-consuming an inquiry about fraud risks as they might have liked. Perhaps they accept peculiar journal entries, with insufficient explanations, without seeking corroboration elsewhere once a client begins to squawk. This is unhealthy in audit work. It is inimical to quality control, and it can lead an auditor astray. It can also increase exposure to a professional liability claim. The necessary blend of poise, tact, and confidence to survive these encounters is not covered in any professional how-to texts, and it does not appear, as such, on any checklist. It is gained through experience. As you gain experience, learn how to recognize the circumstances in which professional skepticism will likely be met with personal affront.

There are some cases when skepticism is unwelcome, for example, in less formal, less hierarchical organizations, such as family businesses and many not-for-profits, the auditor may find a culture of trust based on personalities and relationships, a greater reliance on tenure and reputation, and a porous sense of rank. In these environments, the exercise of professional skepticism can really rock the boat [2].

Summing it up, we’d like to say that professional skepticism in auditing implies an attitude that includes a questioning mind and a critical assessment of audit evidence without being obsessively suspicious or skeptical.

In other words professional skepticism means:

- not accepting the evidence you have gathered at face value;

- continuing to pursue all avenues of inquiry on the topic at hand;

- critically assessing evidence without being overly suspicious or cynical;

- increasing your awareness of how supporting documentation is selected and the amount of documentation that is collected;

- corroborating management explanations or representations concerning material matters [3].

We have all grounds to say, that all of us have a professional responsibility to ask more probing questions, critically analyze the answers, and be sure we have used all of the evidence presented. I’d like to add that it is initial essentiality for Ukrainian auditors understand the meaning of “professional skepticism” for successful using it in practice.

Literature

1. International Standard on Auditing 200 “Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing” / Internet resource [access mode]: http://web.ifac.org/clarity-center/the-clarified-standards

2. Jonathan S. Ziss. Professional Skepticism / Internet resource [access mode]: http://cmaindia.informe.com/forum/accounts-finance-audit-f16/professional-skepticism-t3400.html

3. Professional Skepticism / Internet resource [access mode]: http://www.caclubindia.com/articles/what-is-professional-skepticism-486.asp