A controller explains that an overdue customer balance reflects a temporary delay in processing incoming payments. The auditor must determine whether the available evidence supports that explanation before accepting the balance.
Professional skepticism is an attitude combining a questioning mind, alertness to possible fraud or error, and critical evaluation of audit evidence. The auditor evaluates explanations against evidence before deciding whether to accept them or pursue additional work.
Skepticism appears in observable audit behavior:
- A questioning attitude prompts the auditor to ask why a balance changed and whether management's explanation fits the transaction.
- Alertness means noticing inconsistent records, unusual transactions, questionable documents, or conditions suggesting that additional work may be necessary.
- Critical evaluation means considering evidence that supports management's explanation alongside evidence that challenges it, including the relevance and reliability of each source.
Threats to skepticism can arise throughout financial statement audits of both nonissuers and issuers, including planning, performing procedures, and evaluating results. Each auditor remains responsible for applying skepticism within assigned work, including raising inconsistencies encountered during testing.
Common mistakes
- Experience treated as evidence. Twenty years auditing similar estimates does not support an amount whose current assumptions remain untested.
- Bias confused with dishonesty. An auditor can sincerely believe a conclusion while unconsciously excluding contrary evidence from the evaluation.
- More documents treated as better. Ten management-generated copies of one explanation add no independent support to the original account.
Bottom line
- Professional skepticism combines a questioning attitude, alertness to fraud or error, and critical evaluation of evidence throughout the audit.
- Professional judgment applies relevant training, knowledge, and experience within professional standards and ethical requirements to informed decisions.
- Neither professional seniority, management's prior honesty, nor correction of an earlier fraud replaces sufficient appropriate current evidence.
- Unconscious biases and judgment-making shortcuts can distort evidence evaluation without deliberate dishonesty.
Exam shortcut
Identify the behavior before naming the bias: a starting estimate points to anchoring, a memorable event to availability, selective support to confirmation, and uncritical system reliance to automation bias. For a next-action question, locate the unresolved gap and choose an action that addresses it. A deadline or senior person's confidence cannot resolve conflicting evidence.
The full lesson (about 3,292 words, 22 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- I.B1
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