Q4: Another important code of ethics: Professional Skepticism
Explain the aspects of Professional Skepticism in the context of the
auditing function or the Auditors?
 Professional Skepticism
 According to ISA 200: auditors must plan and perform an
audit with an attitude of professional skepticism
recognizing that circumstances may exist that cause the
financial statements to be materially misstated. This
means that the auditors should have a questioning
attitude or a critical assessment on information received
or evidence obtained.
 This requires the auditor to be alert to:
o Audit evidence that contradicts other audit evidence
obtained( ensure consistency of information)
o Information that brings into question the reliability
of documents (in writing) and responses to inquiries
to be used as audit evidence (it refers to the source
of the information)
o Conditions that may indicate possible fraud (ensure
that there is no fraudulent activities)
o Circumstances that suggest the need for audit
procedures in addition to those required by ISAs
(extensive substantive procedures)
 Professional scepticism needs to be maintained
throughout the audit mainly( present at each stage of the
audit) for two reasons:
o Assessment of risk in order to reduce the following
risks:
 Overlooking unusual transactions, overgeneralising when drawing conclusions
 Using inappropriate assumptions(from the
auditors point of view) in determining the
nature, timing and extent of audit procedures
 Evaluating the results of these assumptions:
looks at its reliability, relevance and
reasonableness (3Rs)
o Critical Assessment of audit evidence which includes
the following:
 Questioning contradictory audit evidence
 Questioning the reliability of documents
 Questioning responses from management and
those charged with governance
Q5 Distinguish between Professional Skepticism and Professional
Judgement
 Professional Judgement
 According to ISA 200: auditors are required to exercise
professional judgement in planning and performing an
audit of financial statements.
 Professional judgement is required in relation to the
following:
o Audit risk and materiality
o Nature, timing and extent of audit procedures
o Evaluation of whether sufficient appropriate audit
evidence has been obtained
o Evaluating management’s judgment in applying the
applicable financial reporting framework
o Drawing conclusions based on the audit evidence
obtained