Professional skepticism, professional judgment and ethical requirements

Professional skepticism, professional judgment and ethical requirements

Auditors are required to carry out the audit with an attitude of professional skepticism, and they should exercise professional judgment when carry out the audit engagement and should comply with relevant ethical requirements.

Professional Skepticism

SLAuS 200 states that auditors must plan and perform an audit with an attitude of professional skepticism, Professional skepticism is all about having a questioning mind and being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.

Professional skepticism requires the auditor to be alert to:

• Audit evidence that contradicts other audit evidence obtained.
• Evidence that brings into question the reliability of evidence to be used as audit evidence
• Conditions that may indicate possible fraud
• Circumstances that suggest the need for audit procedures in addition to those required by SLAuSs

Professional skepticism needs to be maintained throughout the audit to reduce the risks of overlooking unusual transactions, over-generalizing when drawing conclusions, and using inappropriate assumptions in determining nature, timing and extent of audit procedures and evaluating the results of them.

Professional skepticism is also necessary for the critical assessment of audit evidence. This includes questioning contradictory audit evidence and the reliability of documents and responses from management and those charged with governance.

Professional judgment

Professional judgment is the application of relevant training, knowledge, and experience in making decisions about the courses of action that is appropriate in the circumstances of the audit engagement. SLAuS 200 also requires the auditor to exercise professional judgment in planning and performing an audit of financial statements. 

Professional judgement is required in the following areas:

•  Deciding materiality and audit risk
• When deciding Nature, timing and extent of audit procedures
• Evaluation of whether sufficient appropriate audit evidence has been obtained
• Evaluating management's judgments in applying the applicable financial reporting framework
•  Drawing conclusions based on the audit evidence obtained

 Ethical requirements

SLAuS 200 states that the auditor must comply with the relevant ethical requirements, including those relating to independence that are relevant to financial statement audit engagements.