The mammoth frauds at PNB, Sathyam and in Neerav Modi's case has made even the common man question about the quality of audit in India.The need for reliable and transparent financial information is more pronounced today than ever before. This has placed high demand on the Audit Profession in India.
According to us, a skeptical mindset helps auditors to fulfill their duties more effectively and efficiently. In fact, skeptical mindset is required by Auditing Standards which govern the profession. SA(200) on Overall Objectives of the Independent Auditor and Conduct of an Audit, demands the professionals to exercise "Professional Skepticism" both during the stage of planning and performance. The standard defines Professional Skepticism as
"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".
Spanish essayist and novelist Miguel de Unamuno, in his work, "Essays and Soliloquies" describes skeptics. He says, Skeptic does not mean, him who doubts, but him who investigates or researches, as opposed to him who asserts and thinks that he has found. It is the key attitude required, not only for auditors, but for other professionals like doctors, lawyers, policemen etc. Furthermore, a skeptical mind is required to unearth concealment and fraud.
Here are some of the points to follow during an audit engagement to exercise professional skepticism
- Be alert to Audit evidence, that contradicts the other Audit Evidence
- Be alert to any information that brings into the question, the reliability of documents
- Be alert to conditions that may indicate possible fraud
- Consider sufficiency and appropriateness of audit evidence
- Consider biases that he may have in reaching judgments
- Be aware of these biases
- Maintain autonomy
- Be willing to confront the management without having the fear of losing client.
- Don't overlook unusual circumstances
- Don't over generalize when drawing conclusions from audit observation
- Use appropriate assumptions in determining the nature, timing and extent of audit procedures.
To conclude, although the traits listed above are imperative to the profession, applying professional skepticism can be challenging for lot of reasons like familiarity with management and people, time and money constraint, familiarity with the controls in the organizations and natural tendency to seek out evidence that support their decision rather than seeking out the actual evidence, etc. Nevertheless, it can be improved by continuous training and experience.