The Definition and Application of Professional Skepticism - Coursework Example

Name: Tutor: Title: Professional scepticism Date: Professional scepticism Introduction Auditors find it very fundamental to apply professional scepticism in audit quality. In auditing literature, there exist various perspectives and definitions of professional scepticism. Professional scepticism reflects the attitude that concentrates the critical audit assessment and a questioning mind. It is very relevant in the effective audit performance under the Board of standards. This essay seeks to establish the definition and application of the Professional scepticism indicating factors that may affect it as well. The objective of the study is to clearly indicate how professional scepticism is relevant in the field of audit (Glover & Prawitt, 2014). The definition and application of professional scepticism Professional scepticism refers to an attitude involving a questioning mind that is very alert to conditions that can make an indication of possible misstatements (Carpenter, 2009). The misstatements may be as a result of fraud or error and a critical audit evidence assessment. The standards of Auditing explicitly call for the auditors to perform and plan audits with professional scepticism. At the same time, they recognise that a circumstance may exist hence causing financial reports to be misstated materially. Professional scepticism is, therefore, a mindset that is very important. The behaviour of an auditor is driven by the sceptical mindset. The auditor hence attempts to adopt an approach of questioning when forming conclusions and considering the information. Professional scepticism, in this regard, is linked inseparably to the important principles of ethics of auditor independence and objectivity. Professional scepticism is an element that is inescapable in the professional judgement exercise. The auditing profession recognises that to maintain a scepticism attitude is a requisite ingredient in due professional care exercising. The Professional scepticism concept is very pervasive throughout the standards of auditing. The concept invokes scepticism as a component of performing and planning the audit that is necessary. Contemporarily, scepticism’s competing perspective can be gotten in either auditing standards or academic literature. Audit training and education is impeded as long as a disagreement regarding how much scepticism is viewed as sufficient and what sceptical behaviour is. The most fundamental issue in the disagreement is about the auditor’s initial mindset. This is, in particular, towards management as an information source. It is argued, on one hand, that the job of an auditor is remaining neutral and objective throughout the process of audit. On the other hand; however, it is also argued that the mindset of an auditor should be doubtful and full of distrust from an engagement’s mindset. There is as well the professional scepticism volatile nature and many other factors in the environment of audit that are likely to threaten the ability of an auditor to have sceptical behaviours. Application Some regulators suggest that the appropriate professional scepticism application to some extent helped firms in avoiding alleged audit deficiencies (Australian Government, 2012). To a large extent, the application of Professional scepticism is done by being alert. Being alert, for instance, to the evidence of audit that bring contradiction to other evidences of audit initially obtained. Or rather, to information that questions the documents’ reliability or enquiries responses to be used the evidences of audit. Further, professional scepticism involves being alert to a condition that could make an indication of possible fraud or error. And to a circumstance that suggests the audit procedures audit in addition to the requirements of the Auditing Standards. Professional scepticism as well includes audit evidence critical assessment. The audit evidence comprises both information corroborating and supporting the assertions of management together with any information contradicting such assertions. To apply Professional scepticism in such a manner means considering and questioning the appropriateness and sufficiency of the evidence of audit obtained during new circumstances.in case there is a doubt regarding information reliability or an indication of a possible fraud or error, there are requirements of the Auditing Standards that are to be met. It calls for more investigation by the auditor and determine the additions or modifications to the procedures of an audit or any other additions to the procedures of audit necessary to solve a given issue. Other issues involved such as the cost, time and difficulty are not valid bases of auditors to make omissions of the procedures of audit where there are no alternatives or audit evidence satisfaction that is not persuasive in any manner (Australian Government, 2012). The Auditing Standards has requirements that can arguably be perceived as the regulations and rules to be followed instinctively. Nonetheless, this is neither the obligation of the auditor nor the editor’s intention. Auditing calls for the auditor, like other professions, to exercise judgement that is professional when handling an infinite number of situations and circumstances. The standards of auditing are usually principle-based and designed such that they can be practically applied via professional judgement exercise. The audit’s quality together with the judgement quality depends on several factors. The factors include the education of the auditor, experience, personality, training and very importantly, the professional scepticism ingredients-a mind that is ever enquiring and vigilant (Carpenter, 2009). Factors that may impact on professional scepticism There are various circumstances that may affect the professional scepticism. Professional scepticism is for instance higher when the error and fraud risk. The scepticism will as well be low when the error and fraud risk goes low (Carpenter, 2009). Accountability According to accounting research, accountability is a key factor influencing the professional scepticism (Carpenter, 2009). The cognitive studies hence need to make considerations on the accounting judgements making context. Accountability is, therefore, one context that these decisions can be made. Accountability can be defined as the pressure of validating the judgement of one person to the other people. It requires an individual to act on tasks relating to acceptable standard and judgement impacts because social anxiety is created via self-attention which calls for a performance increase in meeting the standards that are required. The literature of auditing holds that when an auditor is held accountable to his or her supervisor, it significantly impacts on decisions. Accountability, therefore, increases the effort of the auditor to detect fraud. Accountability concentrates on both explicit and implicit expectation an individual may be called to justify their feelings, actions and beliefs to other people. Accountability’s sources are a representation of incentives that motivate auditor scepticism. There are at least four components that indicate the relationship of accountability. They include the accountable persons, the source, the response of the accountable person and the accountability relationship. Accountability may therefore affect professional scepticism depending on the penalties, regular rewards or the firm. The extent on which accountability affects professional scepticism is as well dependent on whether the professional scepticism evaluation is based on the process employed by the from or the audit. Or on the results or outcomes of a given case [Wes14]. Culture and individualism/collectivism The way people live and their surroundings determine their perception of life. The operations of a business, auditing included, have proven to be global and international and in that respect, occurring to different cultures. If the audit decisions differences are caused by cultural differences, the quality of audit will hence fail to be uniform across nations. This will happen regardless of the auditors following similar standards of audit. [End12]. Culture includes education system, religion government philosophy, share-meaning system and language. Culture has a great influence on accounting systems development within a given country and as well explains why differences between accounting standards exist differently in various countries. Additionally, culture attempts to explain the differences existing in accounting problems perceptions. Culture, therefore, directly affect the professional scepticism of individuals from various countries. Being different and unique is viewed as important in a culture that is individualistic. Homogeneity and comparability are significant a culture that is collective. The collectivism and individualism dimensions are of particular relevance. They affect philosophies and values that are culturally established and in that respect, nuanced morally. Individualism is very relevant to auditing as it is a cornerstone objectivity and independence cornerstone [Yan15] Collectivism is in most cases concerned with the comparison with others. This is because the individualism culture tends to be more independent and flexible with the auditors having the right of pursuing their decisions and directions that are intellectual. In a society that is collective, an individual “lose face” by failing to meet a group's social needs. This, therefore, suggests that the judgement of an auditor is an individualism/collectivism function. An individual in a culture that is individualistic tends to have a sceptical view towards others. In a nut shell, people from collectivistic cultures tend to be less sceptical compared to those from individualistic cultures (Carpenter, 2009). Audit Knowledge The knowledge of Audit is a very fundamental factor that affects professional scepticism (Glover & Prawitt, 2014). Auditors and accounting students are from different cultures hence they have different knowledge of audit. This is because the different curricula of accounting education together with the requirements of the professional bodies differences in different cultures. People from similar cultures, therefore, have a tendency of sharing similar knowledge of audit. This is because they obtained knowledge via the unique socialisation and system of education. There are therefore differences between the US and Australia for instance in respect to the internal controls evaluation. The differences in the auditing and accounting audit knowledge are the causes of the evaluations of internal control. The differences in audit knowledge hence directly contribute to the varying levels of professional scepticism on errors and fraud tasks. However culture regulates or moderates how professional scepticism relates to audit knowledge (Carpenter, 2009). Conclusion In conclusion, professional scepticism’s application is very fundamental to the quality of the audit. Professional scepticism has different definitions according to the auditing literature. There are many factors that affect professional scepticism with most of them being based on the culture of a particular country. Individualistic cultures tend to be more sceptical compared to the culture of collectivism. List of references Wes14: , (Westermann, Cohen, & Trompeter, 2014), End12: , (Endrawes & Monroe, 2012), Yan15: , ( Yankova, 2015), Read More