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November 2, 2022

Professional scepticism remains point of concern

A lack of scepticism has come to be a recurring finding in auditing inspections all around the globe, despite of significant work on improving audit standards in the area. According to a report released jointly by both the Association of Chartered Certified Accountants (ACCA) and the Hellenic Accounting and Auditing Standards Oversight Board (HAASOB), auditors need to continue to improve their approach to professional scepticism, making full use of the appropriate resources and auditing standards.

Professional scepticism remains a key focus for the audit profession. Professional concern in the auditing standard ISA 200 as the auditor having a questioning mind and being alert to conditions which could indicate misstatement in the report and accounts due to error and fraud and critically assessing audit evidence.

As per the report, one of the core elements in promoting the use of appropriate degrees of professional scepticism in audit work is for auditors to be aware of cognitive biases. However, while cognitive biases may act as an explanation to auditor´s failure to exercise said professional scepticism, other factors, such as fear of losing an audit engagement, may further erode on professional scepticism.

The report has further identified other factors which could negatively impact the quality of audit work, such as authority bias – defined as the tendency to attribute greater accuracy to the opinion of an authority figure. The report notes that this particular factor could be particularly affecting specialised sectors and sustainability assurance engagements.

The report follows through with the conceptual framework of the International Ethics Standards Board for Accountants (IESBA), recognising that “conscious or unconscious bias affects the exercise of professional judgement when identifying, evaluating and addressing threats to compliance with the fundamental principles.” In line with this, the report goes on to identify anchoring, confirmation, and groupthink as key examples of bias.

ACCA director of policy and insights, Mike Suffield, said: “The audit profession is currently undergoing major reform globally with the enhancement of audit quality being one of the top priorities. The exercise of an appropriate level of professional scepticism is an integral part of high-quality audits.” To this, HAASOB deputy chairman Panagiotis Giannopoulos added: “In this report, HAASOB and ACCA, set out some of the recurring issues, often highlighted in audit inspections, relating to the auditors’ performance in exercising professional judgement and professional scepticism, using examples inspired by inspection findings.”

It is relevant to highlight that the report uses examples based on inspection findings in Greece, and it further discusses that recognising the influence of cognitive biases could have resulted in a more robust exercise of professional scepticism in these cases. It further notes developments in international standard-setting relating to professional scepticism and cognitive biases, while also referring to relevant national developments.

ACCA head of audit and assurance, policy & insights and author of the report, Antonis Diolas, said: “Standard setters and policy makers have taken cognitive biases into consideration, and this is a significant step forward in auditors exercising professional scepticism at the appropriate level. Firms will now need to play their part.”

The report came as a result of a memorandum signed by both the ACCA and HAASOB in October 2021, which highlighted the mutual interest of both organisations in shaping European and Greek professions.

More on the ACCA.

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