PROFESSIONAL SKEPTICISM Rebekah Heath, PhD, CPA, CIA May 1, 2014. Why the Continuing Interest?.
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Much has been discussed recently about the importance of PS as auditors are not perceived as consistently behaving skeptically or as varying substantially in their expression of skepticism (Hurtt et al., 2008).
PCAOB Staff Audit Practice Alert No. 10, Maintaining and Applying Professional Skepticism in Audits, was published on December 4, 2012.
Certain circumstances can impede the appropriate application of PS and allow unconscious biases to prevail:
Incentives and pressures resulting from certain conditions inherent in the audit environment (i.e., to build/maintain a long-term audit engagement, avoid significant conflicts with management, keep audit costs low, and/or cross-sell other services)
Scheduling and workload demand (e.g., creates an incentive to seek audit evidence that is easier to obtain rather than evidence that is more relevant and reliable, to obtain less evidence than is necessary, or to give undue weight to confirming evidence)
Inappropriate level of confidence or trust in management.
Glover & Prawitt propose the use of a professional skepticism continuum that acknowledges that the appropriate application of PS will depend on the risk characteristics of the particular account and assertion being audited.
Nelson (2009) notes that “as a practical matter, auditors should note that regulators appear to take more of a ‘presumptive’ doubt perspective, as they typically refer to professional skepticism as something that was missing when an audit failure has occurred.”
However, taking such a perspective in auditing all assertions would result in the collection of MORE evidence than the other perspectives.
After some period of time (around 25 periods) a significant number of subjects no longer purchased risk information and thus were unable to identify that the series had changed to a high-risk situation.
This would be analogous to an auditor seeing a high risk situation and investigating it (often at different clients) over time and never finding a problem. That experience changes behavior!