Executive Summary
In periods of uncertainty and change, the consistent application of professional skepticism remains a cornerstone of audit quality. As fraud risks evolve and financial reporting challenges grow more nuanced, it remains necessary for auditors to maintain a questioning mindset throughout all phases of the audit. While auditing standards mandate the exercise of professional skepticism, its application is inherently judgment-based and situational. This publication explores the importance of cultivating a questioning mindset and attitude, and using guides and scenarios to exercise professional skepticism effectively and understand the behavioral and environmental factors that can either support or hinder its effective use.
The following key points highlight considerations and practices that support the effective application and continued maintenance of professional skepticism in the audit process:
- Professional skepticism is essential to audit quality because it provides auditors with the foundation for decision making when conducting an audit. As the fraud risk landscape continues to evolve, auditors should continue to maintain professional skepticism throughout all phases of an audit.
- Auditing standards require the auditor to exercise professional skepticism in the conduct of an audit, but professional skepticism is a matter of judgment, and there is no one-size-fits-all approach to applying it. Other stakeholders in the financial reporting ecosystem can also apply skepticism throughout their work.
- Auditors can use the concept of the skepticism continuum, a behavioral range of varying levels of doubt, as a guide to help exercise professional skepticism effectively.
- Embracing continuous learning and adaptability is essential for auditors to understand the changes brought on by advancements in technology, such as artificial intelligence (AI), including risks arising from its use, and to effectively exercise and maintain professional skepticism when using AI.
- Being aware of and understanding factors that have the potential to impede effective professional skepticism may allow auditors to better mitigate such factors.
- Training and development is an important element of building and enhancing an auditor’s skill set as it relates to professional skepticism. Continuous learning in relevant technical areas, as well as on topics specific to professional skepticism, can equip auditors to effectively exercise professional skepticism and recognize when something requires further attention.
- A culture that encourages and rewards skepticism reinforces its importance and fosters an environment in which auditors are more likely to effectively apply and continue to enhance their skills in this area.
- To continue to develop and effectively exercise and maintain professional skepticism through an audit, auditors should actively challenge themselves to continue to cultivate and hone their questioning mindsets and attitudes.
- Using the information discussed in this publication may help auditors and other stakeholders within the financial reporting ecosystem apply these concepts in practice.
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