Professional scepticism and other key audit issues

Professional scepticism is an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.

All in our profession will be aware of debate about whether auditors have been sufficiently sceptical in recent times. Concerns of some audit regulators and others have been highlighted in the media and are part of the future of audit debate.

The purpose of these videos is to highlight some of the concerns of the regulator and to be constructive about how audit firms respond to these issues. This is of particular relevance to auditors as they plan their audits in 2012.

Introduction

Explains that the videos covers matters arising from audit inspections. The presenters are: John Kellas CBE, POB Chairman; Martyn Jones, ICAEW Vice-President; and Myles Thompson, Chairman of the faculty’s Technical and Practical Auditing Committee (TPAC).



About the Professional Oversight Board (POB)

John Kellas outlines the POB’s role and where it sits within the Financial Reporting Council (FRC). He also talks about the activities of the Audit Inspection Unit (AIU) and the reports it issues arising from inspections.



Audit Inspection Unit (AIU) findings (as per Annual Report 2010/11)

John Kellas highlights key findings from the latest AIU report and emphasises the importance of individual behaviours to achieving the aim of raising the overall standard of auditing.



Professional scepticism

Highlights the fundamental importance of professional scepticism – as Martyn Jones says: “Professional scepticism is a cornerstone of good auditing”. It provides key messages on the issue that will be of interest to firms at the current time. John Kellas talks about what the AIU has been looking at in the current climate and describes the ways a lack of scepticism can be apparent. Martyn Jones speaks about how auditors should be dealing with the challenges and the need to understand that scepticism is a behavioural issue for the entire audit team. Myles Thompson outlines the personality traits that auditors need to have and gives tips on how to produce documentation that demonstrates scepticism.



Group audits

Outlines important group audit issues that firms should pay attention to. In particular John Kellas explains what group auditors need to do and some problems identified by the AIU. Myles Thompson confirms the need for group auditors to be involved in audits performed by component auditors and refers to the past and future guidance from the faculty on the topic.



Quality Control and audit discipline

John Kellas highlights some AIU concerns including on engagement quality control reviews and file completion. Myles Thompson emphasises the importance of audit reviews and good audit planning. He also refers to recently issued faculty guidance on quality control and the faculty’s plans to provide more practical guidance on specific topics going forward.

Audit Committee reporting

The importance of good communication with audit committees is explained in this video and the speakers refer to how this might be improved. John Kellas highlights issues regarding this reporting identified by the AIU and Myles Thompson agrees with the need for a good flow of information from the auditors. The outputs of an audit should have a real beneficial impact on the financial reporting process.

Audit documentation

This video highlights why audit documentation is so important and reminds auditors what they should include in the audit files. John Kellas explains good documentation makes a real contribution to quality and helps to encourage and demonstrate scepticism. Martyn Jones outlines the benefits of developing a document where there is a significant matter and Myles Thompson explains what types of file notes should be prepared by auditors. This video includes earlier points made about documentation in relation to professional scepticism.

Ethical matters

John Kellas reminds auditors of the requirements regarding independence and objectivity and outlines some problems identified by the AIU. Issues are not always dealt with as thoroughly as they should be.

Concluding remarks

Summary of what we hope to achieve as a result of conveying the messages in the videos and highlights the support available and forthcoming from ICAEW. John Kellas confirms that if auditors reflect the points he has mentioned it will help to achieve the AIU’s aim to raise the standard of audits in the UK. Martyn Jones refers to publications and services to support auditors and concludes by referring to the culture within the firm as the key driver in improving the application of scepticism by individual auditors.

Compilation

This is a compilation of all the videos in order of appearance, so it can be viewed within a single training session.

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