Professional skepticism is an attitude that includes a questioning mind, being alert to conditions that may indicate possible misstatement due to fraud or error, and a critical assessment of audit evidence (AICPA, AU-C section 200, paragraph .14). It is a requirement of the auditing standards rather than a personality trait, and the definition has three parts that do different work, so an auditor can hold one of them and still fall short.
The Definition and the Requirement Are Separate Paragraphs
The definition above says what the attitude is. A different paragraph says when it has to be present: the auditor should plan and perform an audit with professional skepticism, recognizing that circumstances may exist that cause the financial statements to be materially misstated (AU-C section 200, paragraph .17).
Read the timing in that sentence. It covers planning as well as performance, so the attitude has to be in place before any evidence has been looked at, which is what stops it becoming a reaction to something suspicious turning up.
Read the reason too. The recognition required is that circumstances may exist causing material misstatement, not that they do. Skepticism is owed to the possibility, and that is why it does not lapse on a clean engagement.
The Standard Draws a Middle Ground, and Names Both Edges
One sentence rules out both of the easy readings at once. The auditor neither assumes that management is dishonest nor assumes unquestioned honesty (AU-C section 200, paragraph .A27).
The same paragraph then protects each edge from the other. The auditor cannot be expected to disregard past experience of the honesty and integrity of the entity’s management and those charged with governance. Nevertheless, a belief that management and those charged with governance are honest and have integrity does not relieve the auditor of the need to maintain professional skepticism, or allow the auditor to be satisfied with less than persuasive audit evidence when obtaining reasonable assurance (the same paragraph).
That last clause is where the concept becomes testable. A long clean relationship with a client is permitted to inform the auditor’s expectations, and it is not permitted to lower the evidence bar. The failure the standard is describing is not thinking well of a client, it is accepting thinner evidence because of it.
Bias Is Written Into the Standard
The application material names the mechanism by which skepticism quietly fails: unconscious or conscious auditor biases may affect the auditor’s professional skepticism and professional judgment, including in the design and performance of audit procedures or the evaluation of audit evidence (AU-C section 200, paragraph .A28).
The two placements in that sentence are worth separating. Bias in the design of procedures decides what evidence gets gathered at all, and no amount of critical assessment afterwards recovers evidence that was never sought. Bias in the evaluation decides what the gathered evidence is taken to mean. The first failure is invisible in the workpapers, because nothing missing leaves a mark.
It Is a Team Attribute, Not Only the Partner’s
The quality management standard puts the requirement on the engagement team rather than on one signer. Under it the engagement team is required to plan and perform an audit with professional skepticism and to exercise professional judgment, and professional skepticism supports the quality of judgments made by the engagement team and, through those judgments, supports the overall effectiveness of the engagement team in achieving quality at the engagement level (AICPA, AU-C section 220, paragraph .07).
The same paragraph adds the practical consequence: the appropriate maintenance of professional skepticism may be demonstrated through the actions and communications of the engagement team, which is the closest the standards come to saying that an attitude has to leave evidence behind.
What Professional Skepticism Is Not
- Distrust. Ruled out by name in paragraph .A27 above. An auditor who begins from an assumption of dishonesty has failed the standard from the opposite direction.
- Professional judgment. The standards define and require the two separately, judgment being the application of relevant training, knowledge and experience in making informed decisions about appropriate courses of action. Skepticism governs the stance toward evidence, judgment governs the decisions made with it.
- Reasonable assurance. Assurance is the level of confidence the finished opinion states, and skepticism is one of the things that has to be present for that level to be reached. The report’s own wording on the limit sits in the audited report.
- A materiality threshold. Materiality decides which misstatements matter, not how evidence is weighed, and the entity-specific test is in materiality.
Common Questions
Asking rather than assuming, and testing the answer. The standard’s own three parts are a questioning mind, alertness to conditions that may indicate misstatement from fraud or error, and a critical assessment of the evidence obtained.
No, and the standard says so directly. The auditor assumes neither dishonesty nor unquestioned honesty, which leaves the auditor’s expectations open and the evidence bar fixed.
Throughout planning and performance, because the requirement names both. It is not triggered by something looking wrong. It is the condition under which the work is planned in the first place.
It informs expectations and it does not lower the bar. Past experience of honesty and integrity may be taken into account, and a belief in that integrity does not permit the auditor to accept less than persuasive evidence.
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