There’s been lots of talk lately about “scepticism” and “auditing”. As in the post-corporate collapse… “the audit failed to demonstrate a necessary degree of professional scepticism”.
This sort of comment makes for a tasty sound bite. And it’s clear that a good degree of scepticism is at the heart of a good auditor. But what does it really mean? And do remarks like this help anyone?
Thankfully the ICAEW has gone some way to shedding light on the issue in an excellent report Scepticism: The Practitioner’s Take.
Degree of scepticism
It basically says that simply urging a more doubting attitude “should be resisted”. In fact, the report deploys its own degree of scepticism by saying: “To date the quality of the debate on scepticism has been somewhat superficial.”
ICAEW manager, auditing standards, Katharine Bagshaw says: “Scepticism is about quality, not quantity – asking the right questions, not just a lot of them. There comes a point where asking more questions ‘just in case’ becomes ineffective. There are deadlines to be met and auditors have to move on.”
The report aims to “move the debate forward by capturing and offering insight into what real auditors and the people who work with them
know about scepticism, and what they think the issues are.
Best of their ability
“It reveals how auditors currently try to exercise scepticism to the best of their ability within a limited timeframe. It also sets out what they are trying to do to make better use of that time, and the staff and other resources they have available.
“We conducted interviews with 15 practising auditors, training providers who also perform file reviews, and audit regulators. We asked them about the nature of scepticism, who is responsible for it, and what needs to be addressed to improve it.”
Here’s an example from ‘AG’:
“I think people are a bit more sceptical than they were 15 years ago. There is less trust around generally and people are more prepared to push the client a bit because they’re more worried. If I have to put my name to this, I need to cover myself.”
Or from JK:
“It’s far easier to question someone if you remember that the client isn’t the person in the suit
standing in front of you; it’s whoever served you your latte before you came in to work, because it’s
their pension fund that has shares in the company you’re auditing.”
The report highlights the need for changes in training and practice in much more detail than I can here. Bagshaw adds: “Preparers of accounts, in particular, need to exercise scepticism themselves before handing information over to external auditors… there is a shared responsibility for scepticism.”
It’s a great report. Interesting. Illuminating. And well worth a read.