PCAOB alert says audits must be conducted with skeptical eye

BY KEN TYSIAC
December 4, 2012

The PCAOB is reminding auditors to maintain their professional skepticism when they conduct audits.

A staff audit practice alert issued Tuesday by the PCAOB said the board has observed continued instances in which auditors did not appropriately apply professional skepticism.

Staff Audit Practice Alert No. 10: Maintaining and Applying Professional Skepticism in Audits is intended to assist audit firms in their application of professional skepticism in upcoming calendar year-end audits.

“Professional skepticism is an attitude that requires a questioning mind and a critical assessment of audit evidence,” PCAOB Chief Auditor and Director of Professional Standards Martin Baumann said Tuesday at the AICPA Conference on Current SEC and PCAOB Developments in Washington. “It is essential to the performance of every audit and for effective audits.”

Failure to appropriately apply professional skepticism may prevent auditors from obtaining appropriate evidence to support their opinions, according to the practice alert. Skepticism failures also may prevent auditors from identifying material misstatements of financial statements.

While professional skepticism is important in all aspects of the audit, it is particularly important in areas that include significant management judgment, particularly in areas with great measurement uncertainty, Baumann said.

In addition, Baumann said, skepticism is especially important when considering transactions outside the normal course of business, such as:

  • Nonrecurring transactions.
  • Financing activities.
  • Related-party transactions that might be motivated solely or in large measure by an expected or desired accounting outcome.


“Audits are performed to provide investors assurance on the fair presentation of the financial statement prepared by management,” Baumann said. “If the audit is conducted without professional skepticism, the value of the audit to investors and others is seriously impaired.”

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

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