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IFAC Paper on Auditor Scepticism

By Julia Penny

I don’t think it matters how many years you have been auditing; you will surely always feel that the issue of scepticism (or skepticism as IFAC et al insist upon using) is ever present. The trouble is, it is often ever present in that theoretical world of what auditors are supposed to do and perhaps not so omnipresent in the practical world of doing an audit.

IFAC recently (14 August 2017) issued a paper Toward Enhanced Professional Skepticism looking at the progress of a cross-representational working group on the issue. This included representatives of the International Audit and Assurance Standards Board (IAASB), the International Accounting Education Standards Board (IAESB) and the International Ethics Board for Accountants (IESBA). The paper highlights that scepticism is perhaps even more important today, as there are so many more judgements, estimates and complex business models that auditors must consider.

The question is how do we ensure that scepticism runs through all aspects of the audit? The paper notes some key observations:

  • Increased attention to business acumen is central to the exercise of scepticism

o   If you don’t understand how the business works, the laws and regulations which apply to it, etc., it is very difficult, if not impossible to be sceptical.

  • Environmental factors can influence the ability to exercise professional scepticism

o   Tight deadlines, the tone at the top, “groupthink” or local culture can all influence the degree of scepticism applied.

  • Awareness of personal traits and biases is essential

o   Traits such as confidence; an inquisitive nature; responses to stress, time pressure or conflict; experience and bias all influence scepticism. For example, a junior who both lacks confidence and is inexperienced may have much more difficulty standing up to a client or questioning the figures than one who whilst inexperienced is naturally confident and inquisitive.

o   Biases such as anchoring bias – where one relies too heavily on the first piece of information given; confirmatory bias – where we look for information to support what we originally thought was correct and groupthink, where people strive for a consensus within the group can all have a vital (and negative) impact upon scepticism.

  • Building in professional scepticism from the outset is key:

o   We need to ensure that right from the start of someone’s career scepticism is embedded. Training and education, together with the right tone at the top, can help.

  • More needs to be done by the three standard setters.
  • Some aspects of scepticism may apply not just to auditors but other professional accountants.
  • Standard setting alone will not be enough.

Application in practice

This might seem all well and good, but again focussed on the theoretical. Nonetheless, you can take account of these points in communicating with your audit teams.

You can recognise that there may be a tendency to accept the first piece of information presented as fact and so arm your partners and staff with a follow up response sequence to ask themselves: if it stands up to scrutiny; if they have challenged the client’s and their own presumptions; if they have evidenced that challenge on file.

You can also consider these points when reviewing audit work. Is there evidence that the group has worked to achieve a consensus that is not appropriate, perhaps dismissing alternative suggestions for findings? Is there evidence that information is accepted without challenge? Give-away phrases (exaggerated here for emphasis) such as “Bob prepared this so we are happy…”; “the client says there is no need for a bad debt provision...” might suggest anchoring bias where we accept the first piece of information we are given. Is there evidence that the audit team has only worked to confirm what management have told them (confirmatory bias) rather than considering alternative explanations?

To achieve and maintain professional scepticism is by no means an easy feat, but there is a useful diagram, on page 10 of the IFAC document, which summarises some of the higher-level actions required by firms and regulators. So, have a look at this and think how you might counter some of these real-life threats to scepticism. 

August 2017 


This article is published with the understanding that SWAT UK Limited is not engaged in rendering legal or professional services. The material contained in this article neither purports, nor is intended to be, advice on any particular matter. This article is an aid and cannot be expected to replace professional judgment. SWAT UK accepts no responsibility or liability to any person in respect of anything done or omitted to be done by any such person in reliance, whether sole or partial, upon the whole or any part of the contents of this article.