Tuesday 10 July 2018, Debate about auditor scepticism needs to be more substantial and constructive, according to ICAEW’s latest report Scepticism: The Practitioners’ Take. The report captures fresh insights from auditors, and those who train and regulate them. It highlights what auditors are doing and recognises that they have lessons to learn, but also says that it is unhelpful to use ‘lack of auditor scepticism’ as a catch-all explanation for anything that goes wrong on audits.
The report presents the considered views of auditors in a hostile current environment. It notes that while auditors must make changes to fulfil public expectations, the temptation to simply call for ‘more scepticism’ should be resisted. The report emphasises the many ways in which audit firms are trying to make sure that scepticism is skilfully exercised in the field.
“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 key is knowing when to do that.”
The report highlights changes that need to be made to enhance auditor scepticism. Auditors first need experience and an intimate understanding of the business. They then need to step back to see the bigger picture. Methodologies also need to be sufficiently robust to withstand the pressures that build towards the end of a complex audit, and to enable auditors to challenge management effectively from start to finish.
Many interviewees believed recent pressures such as increasing subjectivity in accounting requirements and rising expectations among regulators have contributed to an increase in scepticism compared to a decade ago. Interviewees also emphasised that scepticism is not just for auditors. Audit committees, management and internal auditors should also demonstrate how they have challenged and probed systems, controls and financial information.
“Preparers of accounts, in particular, need to exercise scepticism themselves before handing information over to external auditors. Most of ICAEW’s members are in business, there is a shared responsibility for scepticism: it needs to be exercised by all of our members, not just auditors.”
The full report can be found here: www.icaew.com/scepticismreport
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