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March 9, 2011

Auditors reject call for enhanced scepticism

UK auditors have rejected claims over the lack of scepticism and have called on the Auditing Practice Board (APB) to rethink the debate on enhancing scepticism in the conduct of an audit.

The call is a response to the APB’s discussion paper ‘Auditor Scepticism: Raising the Bar’ published last year, calling for debate on enhancing auditor scepticism.

Baker Tilly questions the debate in its response to the APB by saying that the new clarified ISAs, which incorporate a number of changes to scepticism, have yet to be implemented in practice, with their impact on audit yet to be assessed.

Deloitte said the APB needs to avoid measures that would add to the business cost or make it more difficult for companies in distress to survive.

Meanwhile Grant Thornton said the APB should seriously reconsider its proposals following this debate.

“We question whether the principle users of audit and financial statements , ie investors, would receive much benefit from additional research and standards as suggested in the discussion paper or time spent by auditors on additional training,” the firm said in its statement.

KPMG UK said that time and cost are not the only downsides of too much scepticism and warns that unwarranted overt scepticism can easily be perceived as aggressive and also be viewed as a lack of trust.

“That in turn can lead to a defensive reaction and lack of openness with the auditor to the detriment of the audit overall,” KPMG added.

In its response Ernst & Young said there is no evidence to support the claim the claim that there is a fundamental problem.

The APB said it has reviewed all the concerns from the audit profession but it will carry on working to improve scepticism.

The APB said it will work towards:

  • Ensuring that there is a consistent understanding of the nature of professional scepticism and its role in the conduct of an audit,
  • Reviewing ISAs (UK & I) for possible ambiguities in relation to the nature and importance of professional scepticism, and propose changes that may be needed to make sure the position is clear,
  • Reviewing ISQC (UK & I) 1 to ensure that it has sufficient requirements and guidance relating to the need for firms to have appropriate policies and procedures for promoting the competencies that underlie professional scepticism,
  • Considering how the application of scepticism can be made more transparent, and
  • Considering, with other parts of the FRC, whether there is a need for guidance on the approach to be taken by auditors when considering the presentation in the financial statements of matters that have been the subject of significant challenge by auditors

The APB also aims to give further thought to how best to achieve a more consistent understanding – for auditors and audit committees -of the nature of professional scepticism and its role in the conduct of an audit.

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