Auditing always needs a questioning mind and a critical eye to ensure a fair and transparent result. The auditor’s attitude matters the most in the process since it can catch any misstatement or fraudulent activity. Professional skepticism is always necessary for audit with good faith and facts-driven results. Moreover, it also indicates the extent to which auditors play their role and whether they are biased in their approach. This article will explain professional skepticism, its importance, followed by necessary elements. Keep reading to know more!
What is Professional Skepticism?
The professional standards of audit define professional skepticism as an attitude that includes a questioning mind. It indicates the auditors being alert to conditions stemming from possible misstatements in the audit process. The definition will let you know that it is something that can’t be developed overnight.
There are three major aspects of professional skepticism that you should understand. These are enlisted in the coming lines:
- A questioning mind and attitude of auditors
- Being alert to fraudulent activities and misstatements
- A critical assessment of the audit evidence
Once these three aspects are fulfilled, the auditor is said to be with professional skepticism. The attitude matters the most, and finding the best auditor can sometimes be tedious. You can find highly qualified auditors with professional skepticism once you connect with top audit firms in Dubai.
Why does it matter?
why is professional scepticism important to the audit
Professional skepticism has numerous goals to achieve while the audit process is on. The firm’s management under question should ensure these goals are achieved by critically looking into this aspect. Following are the points that can explain the importance of professional skepticism during an audit.
i) Quality of service:
The way auditors apply professional skepticism reflects the quality of service they provide. Applying the concept will imply whether the auditor understands the industry of the firm under audit. With a deeper understanding of your business, the audit process will go as fair and transparent as you want it.
ii) Titles the auditor as independent:
The concept of professional skepticism applies only to the auditor and not the other audit stakeholders. By definition, the auditor applying skepticism should be independent of the organization and other stakeholders. Such an approach will ensure a fair and error-free audit with unbiased decisions.
iii) Detect flaws in financial reporting:
According to the skepticism, auditors will analyze a firm’s financial statements and ask questions about different transactions. A series of questions will detect and prevent flaws and fraudulent actions in a company’s financial statements, keeping things on track. Following are the general questions that the management should ask itself before the audit begins.
- Are we taking into account all the relevant data?
- Are we using unbiased estimates and approaches?
- Do we need to consider alternative accounting estimates?
- Can we defend our current accounting approaches and estimates?
iv) Critically assess your work:
Before the audit begins, the management can assess their current business position. Since they will have a fear of professional skepticism and the questioning attitude of the auditors, they will critically assess every aspect of their firm. Doing so will enable you to take corrective actions and right your wrongs.
Important Elements of Professional Skepticism:
As discussed, professional skepticism has a major impact on audit quality along with a few other positive points. Now is the time to discuss its main elements and see what good they do to a business. The main three elements are:
Reliable audits are not only limited to audit standards and quality It also incorporates the competence level of an auditor. The skills and knowledge of an auditor indicate his competence level, and it is considered an integral element in professional skepticism.
Professional skepticism is directly associated with the competence level of an auditor. The more competent an auditor, the highly skeptical mind. You can connect with highly competent auditors at top audit firms in Dubai.
Approach refers to the good faith and integrity of an auditor. Is he biased in his decision or unbiased? It is not a game of honesty or dishonesty, rather the approach to deal with misstatements and misrepresentations.
An auditor should be optimal in his approach to deal with frauds and misstatements in financial or other reportings. He should use integrity and good faith while making the final report of the audit.
The final element of professional skepticism refers to the action of an auditor; it indicates the importance of robust risk assessment and engagement planning. How the auditor evaluates the audit evidence and ensures rigorous engagement.
Connect with Vigilant Auditors for Effective Internal Auditing!
It is necessary to keep your financial documents and reports transparent enough to pass the audit exam. The auditing committee may ask for any evidence, and you have to keep things ready. It is best to hire professional auditors to keep your firms compliant with modern-day accounting and auditing standards.