The Pros and Cons of Professional Scepticism

A recent article in GAA Accounting notes that “Professional scepticism is central to audit quality, but a balance must be struck between doubt and practicality.” Furthermore, “Professional scepticism is a skill considered by many as the cornerstone of audit quality.” In fact “A review of the International Standards on Auditing (ISAs) reveals the need for auditors to “exercise professional judgment” more than 200 times. To assist assurance providers to enhance their professional scepticism, the New Zealand Auditing and Assurance Standards Board (NZAuASB) is developing an Explanatory Guide which contains references to practical guidance on professional scepticism in an audit of financial statements.”

 

“The essence of scepticism is doubt, and that doubt stimulates informed challenge and inquiry. Doubts often arise from apparent conflicts between what drivers exist in the wider environment in which a client operates (i.e. macro level) and how clients believe they have performed within the context of that environment (i.e. micro level). Professional scepticism encourages a structured consideration of an alternative point of view.” “However, being too sceptical can be detrimental to the audit. Too much scepticism can lead to over-auditing, which can lead to problems meeting deadlines and with the overall economics of the audit engagement. Therefore, just as it is important to demonstrate scepticism, it is also important to ensure the level of scepticism is appropriate in the circumstances – achieving the right balance.”

 

The audit scepticism issue is not confined to New Zealand. In their recent auditor inspections, the UK Audit Inspection Unit (AIU) and the US Public Company Accountants Oversight Board (PCAOB) cited a lack of professional scepticism as a serious problem for auditors. A common argument as to why professional scepticism is not as prevalent as it should be is that the barriers are too high. A number of barriers have been identified internationally. Learn more by reading the article “The Pros and Cons of Professional Scepticism” by Zowie Murray, CA, Audit and Assurance Specialist, New Zealand Institute of Chartered Accountants (NZICA) Technical Services Team. In addition, see the previous posts on Professional Skepticism.

Best Practice Resources for Tax Practitioners in Canada

All tax engagements involve some common elements. However, the time and expertise required may vary significantly for each engagement. More than 50% of insurance claims against Chartered Accountants are tax-related but the majority can be avoided with an effective tax risk management strategy.

The newly revised second edition of the CICA Tax Practice Manual contains 22 comprehensive chapters. It provides information on the important risks associated with tax practice, recommendations and best practices to minimize those risks, as well as useful tools and practice aids to accomplish risk minimization that will assist in improving productivity.

In the electronic version of the Manual, the practice aids are listed at the end of each chapter. Word files, PDF files and links are now included on a CD which accompanies the print version of the Manual. The URLs are included on both the CD and in the electronic versions for quick access to source documents.

Confronting subordination of judgment issues without compromising your ethics

An online article at AICPA Insights notes that “As CPAs, we are increasingly called upon to use our professional judgment in facing key auditing, tax and accounting concerns – especially as the profession moves from being rules-based to more principles-based. We gain our ability to apply professional judgment over time, through experience, training and an understanding of what a reasonable person would perceive as the right course of action under certain circumstances. We are informed by our upbringing, by the guidance of our mentors and colleagues, and during interactions with our employers and clients. At some point during our careers our professional judgment is likely to be tested.”

The AICPA explores the issues in a new video, Ethical Conduct Is Never Out Of Vogue. The video demonstrates how practitioners in business and industry might be pressured into behaving unethically. Ana, a young accounting professional, is asked to record revenue from a large sale that hasn’t gone through yet in order to boost year-end figures. Although she’s assured by everyone (including the CEO of the company) that the sale will go through, she questions the ethical implications of recording the revenue. The video walks through the steps that might be taken in a similar situation.” The AICPA Ethics Hotline handles dozens of inquires like this each year.