Professional Skepticism: Why it is so Important to the Practice of Auditing (Term Paper Sample)

Professional skepticism: why it is so important to the practice of auditing
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Definition of professional skepticism
The same with other common concepts that are fundamental to auditing, it’s hard to come up with one definition that can fully capture that meaning of professional skepticism. On the same note, professional skepticism is demonstrated in a number of ways (Nelson, 2009). Basically, professional skepticism refers to a professional attitude that involves a questioning mind, being attentive to any conditions that may point towards likely misstatement as a result of fraud, error, and a critical assessment of audit evidence.
Many auditing bodies require auditors to plan and carryout an audit with professional skepticism being cognizant of the fact that certain circumstances may exist that make financial statements to be materially misrepresented. In other words, professional skepticism can basically be defined as a mindset that drives the behavior of an auditor to adopt an interrogative approach when financial information and also when forming conclusions. In this regard, professional skepticism is directly related to the fundamental ethical principles of independence and objectivity in auditing (Turner, 2001).
The independence of the auditor is important because it enhances their ability to be objective, act with integrity and maintain an attitude of professional skepticism. It is worth noting that professional criticism should be done with integrity and in good faith. This requires the auditor to neither assume that the management of the organization being audited is dishonest with information provided nor assume unquestioned honesty.
Why professional skepticism is important to the practice of auditing
The important role played by professional skepticism in the practice of auditing cannot be overemphasized. To begin with, the public places its hope on independent financial statement audit because it boosts the confidence of the intended users in the financial statement. A high quality audit report involves the exercise of professional judgment by the auditor. More importantly, it involves an independent mindset that consists of professional skepticism during the planning and performance of the audit. Professional skepticism is an important practice in auditing because it enhances the ability of the auditor to detect and respond to conditions that point to likely misstatement (Nelson, 2009). It comprises of conducting a critical assessment of audit evidence.
Additionally, it means being observant for any audit evidence that contradicts other audit evidence or that causes suspicion the dependability of the information acquired from those charged with governance or the entire management. This critical assessment of the audit evidence brought before an auditor is important because it helps the auditor make right conclusions. It is worth noting that the decision to adopt and apply a skeptical mindset is a personal as well as a professional obligation that should be embraced by every auditor (Nelson, 2009). Moreover, applying a skeptical mindset is closely connected to the basic concepts of professional judgment and auditor independence which contribute to the overall audit quality. The constant application of professional skepticism is imperative for auditors to make the right conclusions in carrying out their work.
Summary and analysis of the article
Basically, this article reviews the existing research concerning professional skepticism in the auditing field. The article begins by defining professional skepticism consistent with recent regulatory concerns and research. Other than the definition, the article also offers a model that describes how audit evidence combines with auditor traits, knowledge, and incentives to come up with judgments that show professional skepticism (Nelson, 2009). The model contained in the article also describes how, presented with a judgment that demonstrates some level of professional skepticism, the judgment combines with auditing incentives, traits, and knowledge to come with actions that show relatively more or less professional skepticism. The model presented by the author also highlights the auditor’s traits, pre-existing knowledge, and incentives come together to determine the amount of professional skepticism in auditing and audit judgment.
According to the article, this perspective facilitates in understanding the ways in which audit firms can influence professional skepticism in practice through employing, training, performance appraisal, decision aids, review, incentives, and changes in institutions and tasks. Additionally, the article discusses in detail research related to professional skepticism regarding the judgment process itself (Nelson, 2009). It also relates all the above mentioned elements to auditing process that show professional skepticism. Lastly, the article concludes by presenting suggestions for future research concerning professional criticism.
How this work may be applied in today's audit environment
The first way through which this work may be applied in today’s audit environment is by requiring that auditors have the right knowledge. This is because auditors who are highly knowledgeable are in a better position to recognize high-frequency errors as well as complex patterns of evidence that reveal error. Understan...