IAASB – Guidance on Professional Skepticism in an Audit of Financial Statements

With regard to professional skepticism, a Questions & Answers (Q&A) publication developed by staff of the International Auditing and Assurance Standards Board (IAASB) was issued in February 2012. It states: “The public places value on the independent financial statement audit because it enhances the degree of confidence of intended users in the financial statements. A high-quality audit features the exercise of professional judgment by the auditor and, importantly, a mindset that includes professional skepticism throughout the planning and performance of the audit.”

The Q&A publication explains that: “The need for professional skepticism in an audit cannot be overemphasized. Professional skepticism is an essential attitude that enhances the auditor’s ability to identify and respond to conditions that may indicate possible misstatement. It includes a critical assessment of audit evidence. It also means being alert for audit evidence that contradicts other audit evidence or that brings into question the reliability of information obtained from management and those charged with governance. This critical assessment is necessary in order for the auditor to draw appropriate conclusions.”

The Q&A, published by the International Federation of Accountants (IFAC), contains 16 pages of guidance, including eight questions and answers about professional skepticism. It is not meant to be exhaustive and reference to the standards themselves should always be made. The IAASB’s International Standards on Auditing (ISAs) explicitly recognize the fundamental importance of professional skepticism. Nevertheless, adopting and applying a skeptical mindset is ultimately a personal and professional responsibility to be embraced by every auditor. It is an integral part of the auditor’s skill set and is closely interrelated to the fundamental concepts of auditor independence and professional judgment and contributes to audit quality.