The Role Of Professional Skepticism In Audit

ACC701
AUDITING

Trimester 1, 2015
INDIVIDUAL
ASSIGNMENT

Name: Deepika Bandhana Lal ID: 2012000693

ABSTRACT

The purpose of this research paper is to positively evaluate the professional skepticism. The research will be based on the various definitions of the professional skepticism in the standards and the academic literature. It will also enhance the application of skepticism in the field.
Likewise, it clearly demonstrates the effective ways to document the consideration of alternatives or evidences. Moreover, it summaries the audit documentation which demonstrates skepticism thinking in the

Professional skepticism depends on the personal behavioral actions. The need for professional skepticism in an audit cannot be overemphasized.

Professional skepticism is an essential part of the auditor 's skill and is very closely interrelated to the concept of auditor independences and professional judgement and contributes to audit quality.

In addition to professional skepticism is important and required throughout the audit in engagement acceptances, identifying and assessing risks of material misstatement, designing the nature, timing and extent of further audit procedures that are responsive to assessed risks of material misstatement, and evaluating audit evidence, and forming an opinion on whether the financial statements are prepared, in all material respects, in accordance with the application financial reporting framework.

Furthermore, the critical thing of professional skepticism is that, it is a way of deciding whether a claim is always true, sometimes true, partly true, or false. Critical thinking is an important component of most

The first type is “neutral” view. In this the auditor neither assumes that management is dishonest nor assumes unquestioned honesty, under (AU 230.09)

Second view is "presumptive doubt” view because of the quality of fraud, the auditor’s exercise of professional skepticism is important when considering the risk of material misstatement due to fraud. In this the auditor should conduct the engagement with a mindset that recognizes the possibility that a material misstatement due to fraud could be present, regardless of any past experience with the entity and regardless of the auditor’s belief about management’s honesty and integrity.

Furthermore, professional skepticism requires an ongoing questioning of whether the information and evidence obtained suggests that a material misstatement due to fraud has occurred (AU 316.13)

In addition to, most academic literature adopts this view of presumptive doubt, for example, Shaub (1996) equates skepticism with suspicion and as the opposite of trust. Hogarth and Einhorn (1992) defines a skeptic as being someone who is highly sensitive to negative evidence but ignores positive evidence, and McMillan and White (1993) view an auditor as skeptical if the auditor is more sensitive to evidence that reduces the risk of failing to detect errors in the client’s financial