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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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