Professional Skepticism: A Model with Implications for Practice and
Education
I. Introduction
Over the last ten years nearly sixty percent of SEC enforcement actions against auditors
cite failure of professional skepticism as the cause (Beasley et al., 1999). George Diacont, former
chief accountant for the SEC enforcement division also cites a lack of professional skepticism as
a primary cause of actions against accountants (The CPA Journal, 1996). The SEC recognizes
the importance of professional skepticism, while simultaneously acknowledging that CPAs have
serious difficulty effectively incorporating professional skepticism into audit practice. Recent
highly visible audit failures have increased concern about the issue of professional skepticism.
Both accounting academics and practicing auditors have recognized the need and
importance of professional skepticism during the audit process (e.g., Gramling, 1999, Wells,
2001). In a case study of the failure of the PTL club, Tidwell (1995) comments that, “All
auditing work is premised on the assumption that auditors have an obligation to exercise due care
and act with professional skepticism.” Beginning with the first codification of professional
standards, the auditing profession has recognized the importance of professional skepticism
(SAS 1). More recent standards have reiterated and increased the emphasis on professional
skepticism (e.g., SAS 57, 67, and 82). The Panel on Audit Effectiveness suggests that GAAS
does not provide adequate guidance for the implementation of professional skepticism (2000,
15).
While there is universal agreement on the important role of professional skepticism in
effective audit practice, there is less understanding and agreement on what professional
skepticism actually means. It has been defined variously as: an attitude that includes a
questioning mind and a critical assessment of evidence (SAS 82); the ability to detect fraud
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(Choo and Tan, 2000 ); the opposite of trust (Shaub, 1996); a conservatism bias in audit
judgment (McMillan and White, 1993) and the concept that everyone is a suspect (Copeland,
1996). It has also been equated with independence (Kadous, 2000), and with lower client
satisfaction (Behn et al., 1997) and inversely equated to the length of tenure on an audit (Carcello
and Neal, 1999).
At the current time, it appears that most discussions of professional skepticism reflect the
implications of specific situations rather than an overall understanding. Professional skepticism
has been discussed as an attitude (SAS 82), a characteristic of the auditor (McMillan and White,
1993), related to the situation (Shaub and Lawrence, 1996), or similar to existing psychological
scales (Shaub, 1996). While each of these views have value, their inconsistencies reflect an
underlying lack of agreement regarding the meaning of professional skepticism. This fragmented
view of professional skepticism contributes greatly to the difficulty in effectively bringing
professional skepticism into the audit process, and limits researchers ability to provide additional
insights.
In this paper we provide a model that links an extensive set of personal characteristics
found to be associated with skeptics with a set of skeptical behaviors. We implicitly define an
auditor who possesses these characteristics as being professional skeptically and contend that he
or she will exhibit certain behaviors. Our model is designed to help both academics and
practicing auditors by providing implications for both practice and research.
The remainder of this paper is organized as follows. We first review the discussions of
professional skepticism by the standard setters, auditing researchers, and practitioners. We also
review professional skepticism in other relevant disciplines. Then we draw on philosophy and
2
psychology to develop our model of professional skepticism. We conclude with a discussion of
the implications of the models for practice and research.
II. Review of Professional Skepticism
A Regulatory View of Professional Skepticism
Several of the auditing standards address or refer to professional skepticism. The 1997
revisions of SAS No.1 emphasize that without the exercise of professional skepticism an audit
cannot be conducted with due professional care (American Institute of Certified Public
Accountants (AICPA), 1997). The characteristics of skepticism described in that standard are a
“questioning mind”, critical assessment and objective evaluation of evidence, and a willingness
to suspend judgment about the honesty of client management. SAS 57 refers to the importance
of an auditor’s professional skepticism in evaluating subjective and objective inputs into clients’
accounting estimates (AICPA, 1988). Similarly, SAS 67 emphasizes the need for professional
skepticism in designing, performing, and evaluating confirmation procedures (AICPA, 1992).
Neither SAS 57 nor SAS 67 give any indication about the characteristics a skeptical auditor
should possess or behaviors that the exercise of professional skepticism would demonstrate.
SAS 82 stresses the importance of professional skepticism and provides examples demonstrating
the application of increased professional skepticism in response to increased fraud risk
assessment. The Auditing Standards Board recently issued an Exposure Draft revising SAS 82.
This revision specifically increases the focus on professional skepticism.
The Public Oversight Board panel established in response to the SEC's concern about the
quality of financial audits issued a report (POB 2000) that recommends toaudit firms that they
effectively teach the concept of professional skepticism. The report goes on to say that the
current standards "…do not provide sufficient guidance to adequately implement the concept of
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professional skepticism because management is usually judged to possess integrity… (and)
auditors do not always pursue sufficiently conditions discovered during an audit…" (p 86).
An Accounting Research Perspective on Professional Skepticism
Despite the prominence of professional skepticism in auditing pronouncements, there has
been only limited research on professional skepticism within the academic accounting
community. We reviewed all American Accounting Association journals, Accounting,
Organizations and Society and Journal of Accounting Research from 1996 through 2002 for
articles that mentioned “skepticism” or “professional skepticism.” Table 1 lists the research
articles published within that time frame in addition to other skepticism articles that are
commonly cited. These articles follow one of four general approaches: 1) those that deal with the
views or perceptions of non-auditors; 2) those papers that simply mention professional
skepticism; 3) those papers where professional skepticism is used as a variable in their study; and
4) those papers where professional skepticism is the primary focus of the research.
(Insert Table 1 about here)
Two studies deal with non-auditors’ views or perceptions of professional skepticism.
Behn et al. (1997) asked Fortune 1000 controllers to rate their satisfaction with their auditor
using twelve items, one of which was “The audit team member maintained an attitude of
professional skepticism throughout the engagement.” Although professional skepticism was not
defined or explained, the controllers’ response to this statement was negatively correlated with
the controllers’ satisfactions with the audit. Kadous (2000) asked subjects, assuming the role of
jurors, to evaluate a hypothetical audit firm’s professional skepticism. The subjects rated the
audit firm on its independence, its objectivity to the client’s wishes, its unwillingness to allow
latitude in the client’s reporting, and the firm’s willingness to place the public’s interests first.
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These four characteristics comprised her measure of the firm’s professional skepticism. Kadous
found that the subjects’ evaluations about professional skepticism changed depending upon the
size of the hypothetical audit failure and concluded professional skepticism to be a somewhat
arbitrary concept to potential jurors. Although the Kadous study deals with the perceptions of a
firm level rather than individual professional skepticism (which is the focus of the current paper),
these two studies indicate that non-auditors have an awareness of the importance of professional
skepticism.
A number of papers simply mention professional skepticism in their motivation or
implications sections. Mueller & Anderson (2002) discuss how the behavioral predictions made
in their study could differ if auditors were exercising professional skepticism. Shelton et al.
(2001), document that 4 of the then Big Five accounting firms and both second tier firms studied
recommend that their staff adjust their professional skepticism in response to increased fraud risk
factors. However, the authors do not indicate if any of the firms actually have instruction as to
what that adjustment should entail. Asare and McDaniel (1996) assert that a reviewer’s lack of
familiarity with a preparer can induce professional skepticism, and over familiarity can reduce
professional skepticism. Anderson and Maletta (1999) indicate that professional skepticism will
lead to increased cognitive effort. In this research, the range of behaviors of auditor’s
professional skepticism include auditors being slow to make judgments, assuming an error
explanation for differences in analytical reviews, and objective evidence evaluation. The varied
discussions of professional skepticism in these papers provide further support for our contention
that there is no consensus on the characteristics or behaviors associated with professional
skepticism.
Papers where professional skepticism is used as a variable in their study include three
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studies, Peecher (1996), Gramling (1999), and Turner (2001), where professional skepticism was
used as an experimental manipulation. All three studies presented subjects with a partner’s
memo that stressed the need for either efficiency, or objectivity or professional skepticism during
the audit. In each experiment, the manipulation effectively elicited different behaviors from the
subjects depending upon which version of the memo the subject received. From these studies we
learn that auditors behaving in a professionally skeptical manner act differently than those who
are encouraged to be efficient.
Our final set of studies focused specifically on professional skepticism. Each of these
used a unique explanation of skepticism, had unique expected behaviors of skepticism and
measured professional skepticism differently. McMillan and White (1993) define professional
skepticism as “conservatism bias in audit judgments” and predicted that skeptical auditors will
focus on more error related evidence. They found that auditor’s skepticism was significantly
related to the auditor’s belief revision and the type of evidence that the auditor searched. Shaub
(1996) develops a model of professional skepticism based on the Kee and Knox (1970) model of
trust and suspicion, and uses the Wrightsman (1974) subscales for trustworthiness and
independence as proxies for skepticism. However, neither trustworthiness nor independence was
significant in his experiment. Shaub and Lawrence (1996) develop a model of the antecedents of
professional skepticism (ethical disposition, situational factors and experience), and use expected
skeptical behaviors of confronting the client or performing additional test work as their
dependent variable. They found that situational factors were significant in predicting the
behaviors in 7 of 20 scenarios, ethical issues were significant in 3 scenarios and experience was
positively significant in 3 scenarios and negatively significant in 3 scenarios. Overall, while
each of these studies provides additional insights, it is difficult to draw conclusions about
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professional skepticism, or suggest further research areas based on the results of the academic
research performed to date.
How skepticism is discussed in practice-oriented literature
Academics are not the only people interested in professional skepticism. Professional
skepticism is frequently discussed in practice-oriented literature, primarily directed at the
detection or prevention of fraud. Wells (2001) suggests that as a way to increase professional
skepticism auditors should reflect on the question “If management was attempting to conceal a
material financial statement fraud, where would it show up?” Copeland (1996) suggests that
“professional skepticism is an analytical state of mind that only accepts something as fact if it
can be independently verified.” Taking a somewhat broader view, John Moorlach, one of the
earliest individuals to suggest that in the early 1990s Orange County, California’s portfolio might
have been dangerously risky, asserted, “We must be skeptical, scrutinize, ask questions and hold
people accountable. We have a social responsibility to do so”(Baliga, 1995). Thus, practitioner
literature reinforces the concern about the importance of professional skepticism and seems to
equate professional skepticism with improved fraud detection, but an actual definition or
description of professional skepticism is missing from this literature.
Professional skepticism is required and referenced in the auditing standards, has been the
subject of academic research, and is an important topic for practitioners. A thorough review of
these three areas highlights both the importance of professional skepticism and the lack of
agreement regarding its characteristics and its impact.
How skepticism is discussed in other professions
The concept of professional skepticism is not unique to auditors, but unlike other
professions, the Statements on Auditing Standards require professional skepticism. Accountants
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often assert that professional skepticism is important to other disciplines such as medicine, law
enforcement, and social work, and Copeland (1996) emphatically states, “Professional
skepticism is used by police detectives, auditors, fraud examiners and other investigators.”
Therefore, we also examined how professional skepticism, as well as skepticism with other
labels was discussed in literatures other than accounting. While not exhaustive, we identified
several areas where skepticism or professional skepticism has been researched. A summary of
those areas and our conclusions as to their applicability to accounting professional skepticism
follows.
There is a research stream in psychology that specifically refers to professional
skepticism; however, the professional skepticism discussed in this stream is the skepticism social
workers, counselors, psychologists and psychiatrists, the psychiatric “professional” demonstrate
about the diagnosis of multiple personality disorder (e.g. Cormier and Thelen (1998), Dell
(1988), Dunn (1992), Hayes and Mitchel (1994)). Most of these articles discuss the implications
of mental health professionals’ skepticism about the existence of multiple personality disorder.
Dell (1988) is unique in that he measured professional skepticism using a scale that ranged from
“ordinary doubts regarding the diagnosis of a given patient,” through “strong skepticism that
significantly interfered with the patient’s treatment” to “aggression against the patient or
therapist.” Although it is interesting to see how professional skepticism is discussed in this
context, it focuses exclusively on the skepticism of mental health “professionals” about the
existence or treatment of multiple personality disorders and equates professional skepticism with
disbelief.
There are several papers that discuss skepticism in a legal context (e.g., Cutler et al.,
1988, Cutler et al., 1989, Cutler et al. 1990). These papers examine the effect of expert
8
testimony on jurors’ belief in eyewitness evidence and equate reduced belief in the accuracy of
the eyewitness identification to juror skepticism. They find that while adversarial expert
testimony does not increase juror skepticism, a court-appointed expert explaining the problems
with eyewitness testimony did increase juror skepticism about the identification of the defendant.
These papers deal primarily with skepticism as a way to frame their discussion of the benefits
and drawbacks to using expert testimony in eyewitness cases. They provide little additional
insight into aspects of skepticism that might be relevant to auditors’ professional skepticism.
In the consumer behavior area, there is a stream of research that deals primarily with
skepticism about advertising. Ford et al. (1990) find that consumers are “differentially skeptical”
(skepticism is not defined) of advertising, depending on the cost of the item and the verifiability
of the advertising information. Boush et al.(1994), in a longitudinal study of middle-school
adolescents, find that skepticism about advertising was positively related both to understanding
advertiser tactics and the subject’s self-esteem. Mangleburg and Bristol (1998) examine the
effect of type of family communication, susceptibility to peer influence and marketplace
knowledge to high school students’ skepticism toward advertising. They find that a family
background where a student was encouraged to make consumption decisions was positively
related to skepticism. Susceptibility to normative peer influence was negatively related to
skepticism, while susceptibility to informative peer influence (obtaining product information
from peers) was positively related to skepticism, as was marketplace knowledge. Koslow (2000)
asked the question: can a consumer be too skeptical? He concludes that consumers often use
“extreme skepticism” as a coping mechanism to deal with the persuasive influence of advertisers.
In general, marketing studies have focused on skepticism of specific claims or about specific
advertiser motives. These studies provide little information on the general concept of
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professional skepticism.
In a similar vein, communications researchers discuss the concept of media skepticism.
(See, for examples, Irving and Berel (2001), Irving, DuPen and Berel (1998)). Media skepticism
is the extent to which individuals disbelieve or discount the information provided by the mass
media. Research in this area typically examines what factors increase media skepticism and
whether changes in media skepticism alter subjects’ beliefs or actions. The construct of media
skepticism differs substantially from the concept of professional skepticism, primarily in the area
of the source of the information. Auditors exercise professional skepticism about information
provided from known sources. The research on media skepticism indicates that obtaining
information from known sources (versus unknown mass media sources) in itself increases media
skepticism (Cozzens and Contractor, 1987).
We were unable to identify any research on the impact or relationship between
skepticism and medical diagnosis; however, two studies have been published on the relationship
between skepticism about medical care and using health care (Fiscella et al. (1998),(1999). Not
surprisingly, a patient’s skepticism about medical care led to lower utilization of health care
services and higher patient mortality rates. Again, this research seems to provide little
information on the concept of auditors’ professional skepticism.
It is clear from this review of extant literature that the only discipline that is concerned
with professional skepticism is auditing. While professional skepticism is studied within the
mental health profession, auditing remains the only profession where the requirement for
professional skepticism is codified.
III. Development of the Model
Our review of auditing standards, academic research and practice-oriented literature
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indicates broad agreement regarding the importance of professional skepticism and at the same
time, a profound lack of consensus on what it means to be professionally skeptical. SAS 82
defines professional skepticism as “an attitude that includes a questioning mind and a critical
assessment of audit evidence”. While this definition includes one characteristic and one
behavior associated with professional skepticism, it does not provide a broad framework that
would allow the auditing profession to fully understand and implement professional skepticism.
We agree with Pany and Whittington (2001), who observe that “…generally accepted auditing
standards contain inadequate guidance for implementing the concept of professional
skepticism”(404). For example, under the current definition, there is no guidance to identify
what distinguishes between those possessing and lacking professional skepticism. The lack of
guidance ensures that we will also have difficulty evaluating the degree to which professional
skepticism is present in different situations, or determine whether an auditor has exhibited the
appropriate behaviors with respect to professional skepticism. In addition, the education and
training discussed in the new exposure draft to SAS 82 and recommended by the POB will be
difficult to implement. Based on our review, neither academic nor practice-oriented literatures
provide sufficient additional assistance in dealing with these issues, nor does the skepticism
discussed in other disciplines.
Issues such as those raised with regard to the auditing professions’ definition of
professional skepticism have existed more generally with the overall concept of skepticism for
centuries within philosophy. Taking advantage of the long history of thought and reflection
within philosophy we conducted a thorough review of philosophical writings to identify those
aspects of philosophical skepticism that pertain to professional skepticism. Using the framework
provided by this review as a filter, we determined six characteristics of professional skepticism
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from those suggested by prior auditing research or discussed in the philosophy literature.
We then determine the behaviors that would flow from these characteristics. These
characteristics and behaviors combine to form a model of professional skepticism that could
provide guidance to both practitioners and researchers. This model should benefit practice by
providing a better basis for training and implementation of professional skepticism. An overall
model will enable researchers to develop instruments that can measure professional skepticism,
conduct studies to evaluate levels of skepticism and engage in educational research on the best
methods of teaching professional skepticism.
The review of professional and academic literatures suggests that the concept of
professional skepticism may have multiple characteristics. An examination of the philosophy
literature also leads us to conclude that professional skepticism is multi dimensional in nature.
Our model, based on both a historical understanding of skepticism and an examination of the
professional literature, suggests that professional skepticism is not on a continuum of trust and
suspicion with professional skepticism falling somewhere in the middle. Trust and suspicion are
behaviors that seem to relate specifically to the realm of people. We trust people or we are
suspicious of people. The constructs of trust and suspicion are person focused. In contrast,
skepticism and its subset of professional skepticism relates to the realm of evidence and fact. As
individuals, auditors might be trusting of people, yet be professionally skeptical, thus requiring
evidence before we reach a conclusion. SAS 1, which instructs auditors to make no judgments
about managements’ honesty, but rather acquire evidence, supports our position that skepticism
and suspicion are very different issues.
Our model includes six characteristics derived either from the standards and prior
researchers or from our review of psychology and philosophy. In creating the model we
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determined that professional skepticism includes an appropriate review of the evidence and the
people who supply the evidence, as well as an ability to act on that evidence. The first three
characteristics deal with an examination of evidence: a questioning mind, a suspension of
judgment, and a search for knowledge. The next characteristic, interpersonal understanding,
deals with the people who provide the evidence. The final two characteristics, self-confidence
and self-determination give the auditor the ability to take action on the evidence. Each of these
is discussed in detail below.
Characteristics of Professional Skepticism
Questioning mind: The first characteristic, questioning mind, can be found in the SAS
82 definition of professional skepticism. The philosophy literature also includes the concept of a
questioning mind or disposition toward inquiry as an important characteristic of skepticism.
Stough (1969, p3) indicates that the word 'skeptic' is derived from a term meaning, "to observe
carefully," "to examine," "to consider." Fogelin (1994, p 3) defines a philosophical skeptic as
one who "doubts things - or calls things into question....", McGinn (1989) supports this position,
writing that a skeptic questions everything, even his or her own judgments. Skeptics’
questioning nature is also supported by Kurtz (1992, p 21) who writes, "Skeptics ask, 'What do
you mean?' seeking clarification and definition and 'Why do you believe what you do?'
demanding reasons, evidence, justification, or proof." Thus, we include having a questioning
mind as a characteristic of one who is professionally skeptical.
Suspension of Judgment: The standards also suggest that professional skepticism
should include suspension of judgment (SAS 1) as a characteristic. Suspension of judgment is
also a characteristic considered to be a necessary ingredient of skeptical inquiry (Hallie 1985;
Kurtz 1992). McGinn (1989, p 6) states, "The skeptic takes up a reflective stance compared to
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our ordinary practice of making and accepting knowledge claims." Bunge (1991, p 131) indicates
that "Skeptics do not accept naively the first things they perceive or think...they are critical; they
want to see evidence before believing." Therefore, a skeptic is willing to form a judgment, but is
slow to do so, requiring deliberation and additional supporting information to reach that
judgment.
Search for Knowledge: Mautz and Sharaf (1961) in their AAA Monograph No. 6, The
Philosophy of Auditing, indicate that auditing requires a driving curiosity, and urge auditors to
adopt an attitude of curiosity when performing audits. We equate this curiosity with the
characterization of skepticism found in Johnson (1978) that skeptics seek knowledge for
knowledge’s sake. This differs from the characteristic of a questioning-mind, which conveys at
some level a sense of disbelief or doubt. Bunge (1991) also states that skepticism encourages a
search for knowledge. Based on this, we consider this search for knowledge and curiosity to be
equivalent characteristics.
Interpersonal understanding: The first three characteristics have been associated with
auditors and deal with how the auditor evaluates evidence. Another important aspect of evidence
evaluation deals with the motivations and integrity of the individuals who provide such evidence.
SAS 82 recognizes that potentially misleading evidence might come from client personnel and
recommends corroboration. Well-known writings on skepticism (Burnyeat 1983; Hallie 1985;
Hookway 1990; Johnson 1978; Kurtz 1992; McGinn 1989; Popkin 1979) give evidence that
interpersonal understanding and understanding people’s behaviors is a fundamental requirement
of skepticism. An understanding of people allows a skeptic to recognize and accept that different
individuals will have different perceptions of the same object or event. Once an individual's
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assumptions are identified and understood, the skeptic has a basis for understanding other
people’s perceptions and challenging or correcting their mistaken assumptions.
Self-confidence: In addition to evidence evaluation and evaluation of the motivations of
individuals who provide the evidence, skepticism requires self-confidence and selfdetermination. These two characteristics are consistent with Mautz and Sharaf’s (1961)
discussion of the need for professional courage.
Skepticism, as described by philosophers, is not for the faint of heart. Self-confidence
enables the auditor to challenge another's assumptions. This often necessitates face-to-face
interaction and willingness on the part of the skeptic to explicitly identify and acknowledge
explanations other than those offered by an individual. Therefore, skepticism requires a level of
self-confidence or self-esteem that is necessary for the skeptic to take action upon the doubts or
questions that she or he experiences. We believe that skeptics must possess a level of selfconfidence that allows them to value their own insights at least as greatly as those of others (Linn
et al., 1982). Hookway (1990) recognizes the need for confidence in successful inquiry. Lom
(2001) discusses this requisite self-confidence in terms of an inner calmness and a lack of
disturbance or turmoil.
Self-determination: In addition to self-confidence, which supports the process of taking
action on evidence, self-determination is similar to the standard for sufficient evidential matter.
An auditor must individually decide when a sufficient level of information has been obtained to
personally satisfy him or herself. Similarly, McGinn (1989, p 6) identifies a skeptic as one who
does not easily accept the claims of others. The skeptic identifies contradictions and fallacies
present in the evidence or claims presented by others (Popkin 1979), and requires additional
15
investigation and evidence until he or she is personally satisfied (Bunge, 1991). Thus, a desire to
make a determination for one’s self is another aspect of skepticism.
These six characteristics constitute the essential attributes of an auditor who is
professionally skeptical. They provide a solid foundation for determining what it means to be a
skeptic. These characteristics as well as behaviors are portrayed in Figure 1.
(Insert Figure 1 here)
Behaviors of skeptics
Based on a thorough study of background literature in philosophy, we identify four
behaviors that are expected of skeptics: increased information search, increased contradiction
detection, increased alternative generation, and expanded scrutiny of interpersonal information
(Annas and Barnes 1985; Bunge 1991; Kurtz 1992; McGinn 1989; Popkin 1979). These four
behaviors are also clearly present in the auditing standards. An overview of the relationship
between these behaviors and the standards is presented in Table 2. Our discussion first examines
what philosophers have said about the behaviors of skeptics and then ties those behaviors to the
expectations for auditors described in the existing auditing standards. The early philosophers
wrote about skepticism from a broad perspective; however, we believe that these behaviors apply
equally to professional skepticism. Each of the behaviors is discussed below.
(Insert Table 2 about here)
Expanded Information Search
Early Greek philosophers characterized skeptical behavior as zetetic, searching and
examining (Kurtz 1992), and they claimed that skeptics were people who persisted in their
investigations (Annas & Barnes, 1985, p 1). One way that skeptical men and women are guided
in life is that they Atest their impressions by further examination@ (Kurtz, p 45). Similarly,
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Chattopadhyaya (1991) indicates that a skeptical individual will engage in a search for
information until that individual has obtained the amount and quality of information that he or
she personally requires before forming a judgment. Bunge (1991, p 131) supports this position,
stating A. . skepticism urges us to investigate. . .@ and McGinn (1989, p 6) indicates that a
skeptic undertakes a critical examination of current claims. Kurtz (1992, p 4) concurs,
indicating that skeptics A. . . always . . . demand reasons, evidence, justification or proof,@ and
continues by adding that, ASkepticism is essential to the quest for knowledge; for it is in the
seedbed of puzzlement that genuine inquiry takes place@ (p 22). Thus, one behavior that
auditors with professional skepticism will exhibit is a more extensive information search than the
search performed by less skeptical individuals.
Considering the professional audit literature, we find the expanded information search
behavior is consistent with the SAS 1 requirement that auditors obtain a sufficient level of
evidence prior to forming an audit opinion. Similarly, SAS 82 recognized the relationship
between risk and the expanded need for audit evidence and discusses some of the methods that
the auditor can employ in the search for additional evidence.
Increased Contradiction Detection
Kurtz (1992, p 22) indicates that detection of contradictionsa is one of the primary
behaviors of a skeptic, stating, "Skeptics are able to detect contradictions. . .they discover
hypocrisies, double standards, and disparities between what people profess and what they
actually do.@ He continues this discussion by indicating that skeptical inquiry requires logical
a
As used within this paper contradiction, means, Aa situation in which inherent factors, actions, or
propositions are inconsistent or contrary to one another@ (Mish, 1994, p 251).
17
standards of coherence and consistency. Examination of information for coherence and
consistency reveals contradictions and inconsistencies. Kurtz further explains:
A hypothesis cannot be treated in isolation, but must be considered in its
relationship to other beliefs, especially those supported by the evidence and even
those that have not been confirmed. We seek to ascertain how well the belief
relates to other theories of propositions that are maintained to be true. (p 124)
McGinn (1989) indicates that a skeptic will uncover unproved assumptions lying behind
acceptance of a belief framework. She suggests that this occurs because the skeptic is able to
detect inconsistencies in factors, actions or behaviors within situations.
During the conduct of an audit, an auditor is expected to develop specific expectations
and to compare these expectations to actual audit findings to identify any differences (SAS 56).
Identification of these differences or contradictions is necessary for an effective audit. Thus,
both philosophy and professional standards indicate that detection of contradictions is a behavior
of professional skepticism. In addition, contradiction detection may motivate the expanded
information search discussed above.
Increased Alternative Generation
McGinn (1989) indicates that one of the behaviors of a skeptical individual is that he or
she constructs alternative hypotheses regarding statements or claims. Kurtz concurs, stating
Askeptics wish to examine all sides of a question; and for every argument in favor of a thesis,
they usually can find one or more arguments opposed to it@ (p 22). Thus, skeptical individuals
will construct explanations, hypotheses or scenarios as alternate interpretations for the
information that they observe.
In addition to the development of specific expectations discussed above, auditors are also
required to understand and explain any differences (SAS 56). The ability to generate potential
alternatives is a crucial step in understanding differences encountered during the audit. For
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example, when an auditor is given evidence such as a client representation, the auditor exercising
professional skepticism will identify and consider other plausible explanations.
Increased Scrutiny of Source Reliability (KH: Work on this)
Skeptics want to understand underlying assumptions behind claims and beliefs, and as
Popkin (1979) indicates, you must understand people before you can fully understand the
assumptions that they make. Skeptics’ tendency toward self-determination results in an
expanded investigation of information provided by people. Only by understanding another
person can a skeptic begin to understand the perceptions and assumptions made by that person,
thus a skeptic is also interested in information about people. This behavior is motivated not only
by a skeptic’s reluctance to accept the claims and beliefs of others, but also by skeptics' desire for
interpersonal understanding. Skeptics are motivated to search for information specifically about
people and closely examine information provided by other people.
We believe that the multi-dimensional characteristics of skeptics combine to determine
one's level of skepticism, which, in turn, drives one to behave in certain ways. We combine the
characteristics of skepticism with the behaviors we believe to be exhibited by skeptics into the
model of skepticism presented in Figure 1.
IV. Implications
The preceding model of professional skepticism provides a more comprehensive view of
professional skepticism than previously existed in either the professional or research literatures.
This broader framework leads to important implications for academic research and teaching,
auditing standard setting, and audit firm policies and procedures. In this section, we discuss some
of these potential implications.
Implications for Academics
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While the model expands our understanding of professional skepticism, further research
into its implications will assist both practitioners and standard setters as they work to effectively
incorporate professional skepticism into the audit practice. So, we begin with a discussion of the
model’s implications for future academic research.
An important first step in furthering our understanding of professional skepticism is
identifying individuals who exhibit professional skepticism. Hurtt (2002) takes this initial step
using the characteristics in this model to develop a scale that measures an individual’s level of
professional skepticism, which she validates with both students and working auditors. The Hurtt
Skepticism Scale will allow researchers to explore many issues related to professional
skepticism. An important area for future research is refinement of the Hurtt Skepticism Scale.
For example, standard setters and firm policymakers might find it useful to identify those aspects
of professional skepticism that are more closely associated with traits of individual auditors and
those that can be learned and/or enhanced by one’s surroundings. One potential research
question regarding the skepticism scale is: Are measures of the characteristics additive or do
they function multiplicatively where a zero in any one characteristic cancels out the value of the
other five?
Another important early research step is the overall validation of our skepticism model.
Hurtt et al. (2002) conduct an experiment that uses the Hurtt Skepticism Scale to measure
auditors’ level of professional skepticism, and find that auditors with higher levels of
professional skepticism exhibit more of the skeptical behaviors than those with lower levels.
Further research into the validity of our model is needed. For example, it will be useful to know
whether there are links between certain individual characteristics in the model and particular
skeptical behaviors, since understanding of such links might be important for the integration of
20
professional skepticism into practice. Other potential questions include: Are all of the behaviors
identified present in individuals with professional skepticism? Are there ranges of behaviors?
A better understanding of professional skepticism will also be useful in evaluating
training and experiential mechanisms. Research needs to be conducted to identify teaching and
training methods that instill an understanding and an ability to exhibit an appropriate level of
professional skepticism. If professional skepticism can be taught, what is the best way to teach
skepticism? It appears from the characteristics and behaviors in our model that professional
skepticism will be strengthened by experiences and not by memorizing a model. This leads to
other education oriented research questions. Can educators develop exercises where students see
what is and what is not a skeptical response? Can professional skepticism be learned through
case studies where students learn to go through a skeptical reasoning process? Would
understanding the logic of evidence cause people to behave more skeptically? Can educators
develop projects that will assist in teaching professional skepticism, or is professional skepticism
learned only experientially? Johnson et al. (1991) found that the single best predictor of
identifying fraud was an individual’s experience where fraud was discovered previously. Is this
increase in fraud detection due to learned professional skepticism? Clearly there are significant
research opportunities in the educational aspects of professional skepticism.
Work needs to be done to determine the appropriate pedagogy to foster the student’s
understanding and awareness of professional skepticism. Once research has provided us with
insight into training and education, it will be important to incorporate professional skepticism
into auditing classes and other related classes.
Implications for Regulators and Firm Policy Makers
21
A better understanding of professional skepticism, including both the characteristics and
the behaviors associated with those characteristics should also prove beneficial to regulators and
firm policy makers. Such an understanding might allow standard setters to more clearly define
professional skepticism and to provide better guidance as to when and where skepticism is
appropriate. Aside from the finding of Behn et al. (1997), auditor skepticism is usually
perceived to be a positive factor that is related to better quality audits. The standards currently
refer to “an appropriate level of professional skepticism.” At this time, we have no way of
measuring or training for such “an appropriate level.” We might find that professional
skepticism occurs along a continuum and that an auditor can be either too high or too low. We
see certain broad questions as potentially beneficial to regulators and firm policymakers. For
example, is it possible (as suggested by marketing research) to be too skeptical? What are
motivational factors that influence skepticism? Do skeptics respond to time-pressure in the same
manner that non-skeptics do? Are more skeptical auditors more or less influenced by firm
culture or client pressure? What is the relationship between level of education and skepticism?
Are more educated individuals more or less skeptical, or do specific types of education influence
skepticism level? Shaub and Lawrence (1999) assert that staff auditors demonstrate higher
levels of skepticism in thoughts and behaviors than do seniors, managers and partners. Is this
caused by peer influence within the firm, by experience or by some other combination of factors?
Implications for Audit Firms
22
Ultimately, the intent of developing our professional skepticism model is to provide
guidance for the actual conduct of audits and to make that process more efficient and effective.
We see clear implications of our model for audit practice in four areas: performance evaluation,
design of workpapers, supervision and training, and audit planning.
Performance evaluation. There is extensive evidence that employees respond to
evaluations and incentives, yet we were unable to identify any firms where personnel are
explicitly evaluated on their professional skepticism. The lack of evaluation on professional
skepticism might be due to the lack of clear understanding about what characteristics and
behaviors demonstrate professional skepticism. Our model of professional skepticism provides a
basis for developing an assessment process for evaluating the professional skepticism
demonstrated by auditors on specific client engagements. On an evaluation form, a section
where audit professionals must identify their own goals and evaluate their own behavior as well
as receive feedback from their supervisors regarding professional skepticism will raise the
awareness of it as a desirable characteristic for firm personnel. Explicit incorporation of
professional skepticism into performance evaluation should create a continuing discussion on the
behaviors one should expect from an auditor who displays professional skepticism.
Workpaper design and the review process. Evidence accumulation and documentation
is currently designed with significant weight given to potential legal liability. This may lead to
preparers limiting their questions, documentation of answers and resolution of contradictions.
Workpapers prepared in this way do not encourage the exercise of professional skepticism.
From our model we would contend that professional skepticism encourages questions, accepts a
certain amount of uncertainty and unresolved issues, and promotes the identification of
contradictions. The design of both audit programs and workpapers should emphasize the need
23
for auditor to ask questions – and to perhaps leave questions or multiple possible answers in the
workpapers so that they might be available for review by more experienced auditors. In its most
extreme form our argument leads to the conclusion that concern for auditors’ legal liability and
exercise of professional skepticism are at odds. Accounting firms, the SEC, and auditing
academics need to discuss and consider new ways to encourage or enforce professional
skepticism within the design of audit workpapers and the review process.
There is research evidence suggesting that the review process functions as a type of
professional skepticism stage during the audit process. Libby and Trotman (1993) find that
reviewers tend to remember counter-arguments for views expressed by audit staff in
workpapers, and that reviewers generate alternative explanations for information contained in the
workpapers. However, unless workpapers are structured so that all information is present
(including unanswered questions or unresolved contradictions that the preparer identified) the
effectiveness of the review process is diminished. Information that never makes it into
workpapers is not available for more experienced personnel to evaluate and review. Review
steps, such as a second partner review, demonstrate firms’ efforts to ensure that more
professional skepticism is present in the audit, but more emphasis is needed on the importance of
initially documenting issues, contradictions, unusual interpersonal information and auditor
generated alternative explanations in the workpapers. Thorough documentation of issues that
arose during the audit ensures that all the issues that the workpaper preparer identified benefit
from the knowledge and expertise of the reviewer.
Professional Training
Auditing firms currently include discussions of professional skepticism in their training
courses and firm manuals. Yet, prior research has demonstrated that when reminded about the
24
importance of professional skepticism, auditors behave differently than when they are not
reminded to do so. The issue becomes, how do the firms develop professional skepticism among
their professionals without constant reminders to “exercise professional skepticism.” In firm
training, in addition to general discussions about professional skepticism and the importance of
maintaining an attitude of professional skepticism throughout the audit, they should consider
exercises with cases where the characteristics and behaviors associated with professional
skepticism can be demonstrated. Perhaps one answer is to develop training modules that are
specifically designed to demonstrate how professional skepticism differs (or looks different)
when exercised by individuals at various levels within the firms
Staff and senior accountants need to understand that they are often the first (and perhaps
only) person with the opportunity to document unusual transactions, treatments or conditions that
more experienced auditors need to evaluate. A staff member’s questions might be due to the staff
member’s limited background and understanding about the client or the client’s business, yet the
firms should encourage these “naïve” questions and demonstrate how questions can reduce
skepticism. These types of questions are specific (e.g., “Why did inventory levels change?”;
“Why have personnel costs increased/decreased?”; “Who could benefit from this error?”; “What
are the incentives in this situation?”). Firms need to teach staff personnel how to formulate good
questions, how to independently generate potential answers to questions, and how to obtain
preliminary evidence to support answers beyond questioning the client.
Audit Planning
Audit planning begins the process of accumulating evidence to support the type of audit
report issued. During the planning stage, decisions are made about the type of audit steps that
will be undertaken, and the personnel who will be assigned to the engagement. Our model of
25
professional skepticism describes characteristics and behaviors that should be present in
skeptical auditors. Perhaps audits need to have an explicit evaluation of the professional
skepticism of the individuals assigned to each, and those who have more of the professional
skepticism characteristics and behaviors should be assigned to riskier engagements.
The POB has called for inclusion of a specific audit stage that considers fraud risk.
Similarly, perhaps there should also be a specific stage where the audit team meets and discusses
areas where members are still not “comfortable” with the amount and type of evidence acquired
or where individuals believe that alternative explanations are at least as reasonable as
management’s explanations or unresolved contradictions exist. Although professional
skepticism is required throughout the audit, firms might consider the need for an explicit
skepticism stage in each audit. During this stage, focus would be on a review of questions and
alternative explanations as well as on an integrated look at all test work. This has traditionally
been performed informally by the manager and the partner, but we suggest a stage where a more
formal identification and evaluation of contradictions, questions and explanations be explicitly
addressed.
V. Conclusion
For decades the auditing profession has stressed the importance of professional
skepticism. Following an extensive review of the professional audit and philosophy literatures,
we propose a model where six characteristics found to be associated with professional skepticism
are linked with four skeptical behaviors. Our review of auditing’s professional literature finds a
number of characteristics have been prescribed for auditors to adopt when performing their
duties with professional skepticism. However, there is no single place in that literature where all
the characteristics we identified are mentioned. Thus, this model articulates and expands upon
26
the set of characteristics of professional skepticism found in the current auditing standards,
providing a comprehensive set of characteristics that can be considered to define professional
skepticism. In addition, the four behaviors identified in our model may serve as a standard
against which the auditing profession can measure whether an auditor is behaving with
professional skepticism.
Accounting academics have been encouraged to conduct research into professional
skepticism. Yet, there has been only limited research specifically directed at understanding this
important subject. We believe that research has been hampered by the lack of a clear
understanding of what skepticism is, and what behaviors a skeptical person will demonstrate.
Our model, based on a theoretical review of skepticism, provides a clearer, more comprehensive
foundation for research into the dimensions of professional skepticism and skeptical behaviors.
Ultimately, this model will require thorough testing and validation. However, we believe
that the comprehensive nature of our model constitutes a significant step toward a deeper and
more complete understanding of what professional skepticism means, and its implications for the
practice of auditing.
27
Table 1 – Professional Skepticism in Accounting Research
Author
How Professional
Skepticism is defined
McMillan
& White,
1993
A conservatism bias in
audit judgments,
referred to as a
“hypothesis frame” p.
445
Characteristics
of Professional
Skepticism
Behaviors of Professional
Skepticism
Skeptical auditors will focus
more on error-related
evidence (I)
Asare &
McDaniel,
1996
Skepticism will dictate the
extent of reviewer work
required in the orientation
phase 142
Familiarity with the preparer
reduces the reviewer
professional skepticism in
the orientation phase 143
“Challenge client
explanations” 128
Peecher,
1996
Behn et al.
1997
Brown et
al, 1999
Shaub,
1999
Shaub &
Lawrence,
1999
…a skeptic is “one who
instinctively or
habitually doubts,
questions or disagrees
with assertions or
generally accepted
conclusions” p. 155
“… a choice to fulfill
the professional
auditor’s duty to
prevent or reduce the
Suspicion (I)
Independence
(I)
Scale or Measure Used
Finding
The auditor’s use of an error based
explanation for client results as opposed
to environmental explanation.
Both auditors’ belief revision and the
type of evidence searched were
significantly related to the auditor’s
skepticism (hypothesis frame).
The reviewer’s lack of familiarity
with the preparer can engender
additional skepticism. 155
1
Not measured – used in an experimental
manipulation of partner’s preferences
Not measured – used in a question “The
audit team member maintained a
skeptical attitude throughout the
engagement.”
Not measured – used in an experimental
manipulation similar to Peecher 1999
Taking action as a direct
response to suspicion (D)
Subjective evaluation of
client’s trustworthiness (D)
Kee and Knox (1970) model of trust and
suspicion.
Wrightsman (1974) Philosophies of
Human Nature instrument (specifically
two subscales – Trustworthiness and
Independence)
Disagree with client assertions
or generally accepted
conclusions (D)
Perform additional test work
Developrofessional skepticism a model
of the antecedents of professional
skepticism where ethical dispositional
factors; situational factors and
28
4
3
Auditor skepticism is negatively
correlated with client satisfaction.
Reminders about professional
skepticism increase auditors’
information desire and could
decrease audit efficiency.
Neither trustworthiness nor
independence were significant
2
3
4
Client (situational) factors were
significant in predicting the level of
professional skepticism in 7 of 20
scenarios. Higher concern with
4
Author
How Professional
Skepticism is defined
Characteristics
of Professional
Skepticism
harmful consequences
of another person’s
behavior. “ p. 126
Anderson
and
Maletta,
1999
Bierstaker
et al., 1999
Carcello &
Neal, 1999
Chen and
Leitch,
1999
Behaviors of Professional
Skepticism
experience lead to an auditor’s level of
professional skepticism
or confront the client (D)
Expanded cognitive effort
Manipulate risk with the expectation that
it will modify the level of professional
skepticism and hence the cognitive effort
expended.
Not measured, used in discussion only
Slow to make
judgments
Glover et
Finding
professional ethics was significant in
3 scenarios. Experience was
positively significant in 3 scenarios
and negatively significant in 3
scenarios.
In low risk settings, primacy effects
were found, but in high risk settings
no primacy effect was found.
1
1
Asserts that auditors with a
long tenure on a client may
have impaired professional
skepticism.
In analytical review, an
account is assumed to be in
material error and audit
effort is reduced only if it is
shown not to be in material
error.
Gramling,
1999
Haynes,
1999
Scale or Measure Used
Evaluate evidence objectively
Auditors with a heightened
Tenure on client serves as a proxy for
level of professional skepticism.
1
1
Audit quality is equated with
professional skepticism. Professional
skepticism is not measured, it is used in
an experimental manipulation similar to
Peecher where a partner’s concern for
professional skepticism is one of the
treatment conditions (I)
Skepticism is used as a motivation for
predicting that auditors will have smaller
belief revisions than non-auditors in a
cascaded inference experiment.
Professional skepticism will result in
29
Not significant in a model of
financially distressed firm’s going
concern report and audit committee
composition.
Term used in discussion only.
In the condition where the partner
emphasized the need for professional
skepticism, there is a significant
information order effect in
determining the budgeted hours of
reliance on internal audit.
When evaluating evidence provided
by management, auditors are more
sensitive to source uncertainty than
evidence uncertainty. In general,
management provided information
has less impact on auditors than nonauditors.
When there were explicit incentives
3
1
1
Author
How Professional
Skepticism is defined
Characteristics
of Professional
Skepticism
al., 2000
Kadous,
2000
“Professional
skepticism refers to the
importance of
independence from the
client and the client’s
demands, and duty to
the public over duty to
the client.” p 335
Objectivity
Behaviors of Professional
Skepticism
sense of professional
skepticism will be more
inclined to revise preliminary
audit plans (D)
Complete independence; not
accommodating client’s
wishes in designing tests;
objective and unaffected by
client’s wishes; does not
allow latitude in reporting;
puts the public’s interests
before the client in designing
audits
Scale or Measure Used
revision in the audit plan when a client
offers a non-error explanation for
fluctuations in the face of explicit
incentives to misstate. (D)
A four item “standard of care” scale for
professional skepticism was developed
where subjects, in the role of jurors,
evaluated the audit firm on the firm’s
level of professional skepticism using a
10 point Likert type scale. (D)
Apostolou,
et al., 2001
Beaulieu,
2001
Henninger,
2001
Equates professional
skepticism with
objectivity. (p 115)
The ratio of a particular client’s sales to
the sales of all client firms audited by a
given auditor – a measure of client
importance.
Objectivity
Shelton et
al., 2001
Swanger &
Chewning,
2001
30
Finding
for management to misstate financial
results and minimal corroborating
evidence, only 56% of auditors
increased the audit plan.
In situations where the consequences
of the audit failure were more severe,
evaluations of auditors did not
depend on the audit quality. In
situations with moderate
consequences, higher quality audits
resulted in more favorable
evaluations.
Indicates that the primary purpose of
SAS 82 was to heighten auditor
skepticism
Recommends future research
combining firms’ policy on
professional skepticism of client with
measures of individual auditor’s
ability to make trade-offs between
perceived client integrity and
evidence collection. 97
CLIENT_IMPORTANCE (proxy for
auditor skepticism) is not
significantly associated with the
probability the auditor is sued.
Four of five Big Five firms and both
second tier firms recommend that
their staff “adjust professional
skepticism” in response to increased
risk factors
Discusses professional skepticism in
reference to the perception of
financial analysts regarding auditors
being less skeptical of outsourced
internal audit functions.
2
1
1
1
1
1
Author
How Professional
Skepticism is defined
Characteristics
of Professional
Skepticism
Behaviors of Professional
Skepticism
Turner,
2001
Mueller &
Anderson,
2002
Consider more items from a
list of feasible explanations,
and increase in effort 159
D indicates dependent variable
I indicates independent variable
31
Scale or Measure Used
Finding
Manipulation similar to Peecher. Memo
stressing the reviewer’s concern about
professional skepticism (I)
In most instances, auditors examined
more items in the professional
skepticism or unknown reviewer
preference scenario.
Does not test – uses skepticism to
frame introduction of expected
behavior of auditors
3
1
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