Professional Skepticism
Definition
An attitude requiring the auditor to question information, remain alert to conditions that may indicate misstatement, and critically assess audit evidence rather than accepting management representations at face value. ISA 200 requires it throughout the engagement; ISA 240 emphasises it specifically in the fraud context.
- General standard
- ISA 200
- Fraud-specific standard
- ISA 240
- Nature
- An attitude, not a fixed procedure
- Requirement
- Critical assessment, not face-value acceptance
Common questions
How is professional skepticism different from distrust of management?+
It does not mean assuming management is dishonest. It means maintaining a questioning mind and corroborating representations with evidence rather than accepting them simply because they were made, while still approaching the engagement in good faith unless indicators suggest otherwise.
Why do auditors get specifically criticised for lacking professional skepticism after a fraud is discovered?+
Post-mortem reviews frequently find that red flags such as unusual journal entries or implausible explanations were documented but not pursued, which is treated as a failure of professional skepticism under ISA 240 even when the audit otherwise followed the prescribed procedures.
Related terms
- Audit Expectation Gap
- The difference between what auditing standards require auditors to do and what the public, investors, or regulators believe auditors are responsible for....
- Fraudulent Financial Reporting
- One of the two ISA 240 fraud categories. It involves intentional misstatement or omission in financial statements to deceive users: overstating revenues,...
- ISA 240
- International Standard on Auditing 240, 'The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements,' issued by the IAASB. Sets...
- Material Misstatement Due to Fraud
- A misstatement in the financial statements caused by intentional act (fraud rather than error) that is large enough, individually or collectively, to...
- Misappropriation of Assets
- The second ISA 240 fraud category. It involves theft or misuse of an entity's assets by employees or management: cash skimming, expense...