Professional Judgment: How to Effectively Use Critical Thinking

A training course offered by the Institute of Internal Auditors (IIA) indicates that: “One of the most difficult skills associated with auditing is determining the propriety of audit evidence. Does it support the audit objective? Is it enough? Is it too much and inefficient? How does professional judgment affect the quality and quantity of audit procedures?”

The description of this course indicates it will provide internal audit staff and management with at least 2 years of experience with the techniques necessary to identify the appropriate evidence to support the audit conclusion. The instruction will also suggest approaches to guide the use of critical thinking skills to facilitate the gathering of audit evidence. Real-life examples of strong and weak evidence will further enhance the learning process.

As a complement to this course, another IIA course emphasizes that: “Auditors are expected to be open-minded and analytical thinkers. Decision making skills and professional judgment are a daily necessity in the internal audit process. Teaching auditors to utilize critical thinking skills throughout the audit process strengthens their ability to identify and assess risk, prioritize testing, align audit objectives with business objectives and identify true value-added activities.”

For more information about these 2-day interactive courses, visit the IIA training centre and obtain the course descriptions on Audit Evidence and Professional Judgment: How to Effectively Use Critical Thinking and Embedding Critical Thinking in the Internal Audit Process.

Internal Audit - How to Develop Professional Skepticism

A recent research article notes that, to date, the Institute of Internal Auditors (IIA) standards regarding periodic internal and external quality assessments do not involve a formal and explicit evaluation of “professional skepticism” (see IIA Standard 1300). But, there is a trend afoot that asserts due professional care incorporates professional skepticism.

According to that article, “Professional skepticism can be thought of as having a reasoning of mind to question what has been presented for evaluative purposes—to look beyond the obvious in the search for revealing information and relationships. In essence, it is more than taking the easy way out. To do so, an individual must go beyond the face value.”

Furthermore, “Professional skepticism relies on the recognition that something is awry and needs to be addressed. As such, performance in the field should use this as the cornerstone for evaluation. ...At a truly effective level of professional skepticism, one is able to draw on one’s past work experiences and observations to make value-adding decisions about audit evidence.”

So, how do you produce highly regarded financial statements in the face of demands to minimize external audit costs? Many companies try to solve this problem by using their internal audit department more during the annual external audit. However, that can be tricky because the internal audit staff is required to remain independent. The solution, say the authors of this article, is to actively develop and maintain the internal auditors’ professional skepticism. And, the authors provide a detailed roadmap that shows how to do that.

To learn more, read the research article Internal Audit - How to Develop Professional Skepticism published in The Journal of Corporate Accounting & Finance, May/June 2011. The research was undertaken by Nicole McCoy, PhD, CPA, Louisiana Tech University; Royce D. Burnett, PhD, CPA, and Marc Morris, PhD, both at Southern Illinois University–Carbondale; along with Mark E. Friedman, PhD, CPA, University of Miami.

Further guidance on the exercise of professional skepticism is available in previous postings.