Activity Based Risk Evaluation Model of Auditing

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Professional skepticism

Professional skepticism in auditing implies an attitude that includes a questioning mind and a critical assessment of audit evidence without being obsessively suspicious or skeptical. Such an attitude results, for example, in the auditor asking more questions then usual, and more probing questions, critically analyzing these answers and then studiously comparing this analysis with other evidence gathered. Refer to The CPA Journal article Auditor Skepticism and Revenue Transactions.

Auditors adopt an attitude of professional skepticism when they evaluate all audit evidence. (However, see Journal of Accountancy article Top 10 Audit Deficiencies.) When the auditor adopts such an attitude, the auditor does not accept evidence gathered at its face value: rather, the auditor evaluates the evidence bearing in mind:

• the evidence may be misleading,
• the evidence may be incomplete, or
• the person providing the evidence may be either incompetent or motivated to provide evidence that is misleading or incomplete.
• the possibility of fraud.

The lower the acceptable level of audit risk [AR*] or the greater the risk of material misstatement [RMM], the greater the application of an attitude of professional skepticism.

See also the Journal of Accountancy article A Fish Story - Or Not.

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