A
2014 academic research paper published by the American Accounting
Association notes that “Due to past high-profile audit failures, reported
audit deficiencies in regulator inspection reports, and the growing number and
size of complex estimates in the financial statements, there is a growing need
for reliability and trust in financial reports and a corresponding increased
demand for enhanced audit quality. Enhancing the level of professional
skepticism applied in practice is one important means of improving audit
quality, but there is a lack of practical guidance around the appropriate
application and documentation of professional skepticism in the professional
literature.”
The following graphic offers a proposed skepticism continuum. Such a continuum enables the auditor
to take the perspective that is most appropriate considering the circumstances
applicable to each audit area and assertion. Applying a continuum to a specific
account and assertion takes place after a careful and rigorous initial risk assessment,
and a continued re-evaluation of the risk throughout the audit to ensure that
appropriate skepticism is applied to the collection and evaluation of audit
evidence.
According
to the paper, “A shared understanding would allow audit professionals to
identify, communicate, and exercise a level of professional skepticism
appropriate for the risks involved, and would enable regulators to fairly
evaluate, after the fact, the level of skepticism applied. The skepticism
continuum we propose represents a potential step forward in understanding the
nature of professional skepticism and in applying it appropriately under
varying circumstances.”
The
paper concludes that, “In order to make the necessary changes, the profession,
academics, regulators, and standard setters should work together to better
understand the nature of professional skepticism, including how skepticism is
threatened at various structural levels, current measures in place to mitigate
those threats and, then, finally, how skepticism can be enhanced at the various
structural levels. Our hope is that this paper will provide a conceptual
foundation to facilitate a productive ongoing dialogue that will lead to
specific actions to enhance auditor professional skepticism and, ultimately,
audit quality.”
To
learn more, read the full paper by Steven M. Glover and Douglas F. Prawitt, both
Professors at Brigham Young University, “Enhancing Auditor
Professional Skepticism: The Professional Skepticism Continuum” in Current Issues in Auditing: December
2014, Vol. 8, No. 2, pp. P1-P10.
