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An Examination of Issues Related to Professional Skepticism in Auditing

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Date Issued:
2012
Abstract/Description:
The third general standard of fieldwork requires auditors to maintain a skeptical mindset with regards to the collection and critical assessment of audit evidence. While professional skepticism is frequently referenced by professional standards, a lack of precision in defining the concept presumably leads to variation in how skepticism is exercised in practice. Drawing on theories from the fields of psychology, economics and organizational justice, this dissertation considers different perspectives of what constitutes sufficient professional skepticism and examines how those perspectives differ between audit practitioners and regulators.First, I consider competing perspectives of professional skepticism (-) neutral versus presumptive doubt (-) and whether asking auditors to adopt alternative perspectives of skepticism may have implications for audit efficiency and effectiveness. While, too little skepticism may endanger audit effectiveness and lead to audit failure or enforcement action, too much skepticism may arguably lead to unnecessary costs and inefficiency.Second, I consider whether the nature of the auditor-client relationship threatens an auditor's ability to maintain an attitude of professional skepticism. For example, theoretical perspectives from the fields of psychology and economics suggest that auditors may, consciously or unconsciously, be less skeptical of clients with whom they have developed close, positive working relationships or financial dependencies. More specifically, I consider whether skeptical behavior is impeded by management who display low-risk attitudes towards fraud or by client's who are considered to be highly important to the profitability of the local office.Finally, I examine how professional skepticism is defined from a regulator's perspective. When a public company is accused of fraudulent financial reporting, regulators may determinethat the audit performed on the fraudulent financial statements was deficient. Prior research has suggested that in such cases, insufficient skepticism is often a leading cause of alleged audit failure. Within a fairness theory framework, this study examines enforcement actions against auditors between 1999 and 2009, and identifies certain factors that are associated with a citation for a lack of professional skepticism. Overall, results suggest that regulators approach the issue by determining whether auditors should have been more skeptical. Factors found to affect this determination include whether the auditor was perceived as having been aware of an elevated risk of fraud or whether the client was accused of having provided the auditor with false or misleading information during the course of their investigation.
Title: An Examination of Issues Related to Professional Skepticism in Auditing.
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Name(s): Nickell, Erin, Author
Trompeter, Gregory, Committee Chair
Arnold, Vicky, Committee Member
Roberts, Robin, Committee Member
Cohen, Jeffrey, Committee Member
University of Central Florida, Degree Grantor
Type of Resource: text
Date Issued: 2012
Publisher: University of Central Florida
Language(s): English
Abstract/Description: The third general standard of fieldwork requires auditors to maintain a skeptical mindset with regards to the collection and critical assessment of audit evidence. While professional skepticism is frequently referenced by professional standards, a lack of precision in defining the concept presumably leads to variation in how skepticism is exercised in practice. Drawing on theories from the fields of psychology, economics and organizational justice, this dissertation considers different perspectives of what constitutes sufficient professional skepticism and examines how those perspectives differ between audit practitioners and regulators.First, I consider competing perspectives of professional skepticism (-) neutral versus presumptive doubt (-) and whether asking auditors to adopt alternative perspectives of skepticism may have implications for audit efficiency and effectiveness. While, too little skepticism may endanger audit effectiveness and lead to audit failure or enforcement action, too much skepticism may arguably lead to unnecessary costs and inefficiency.Second, I consider whether the nature of the auditor-client relationship threatens an auditor's ability to maintain an attitude of professional skepticism. For example, theoretical perspectives from the fields of psychology and economics suggest that auditors may, consciously or unconsciously, be less skeptical of clients with whom they have developed close, positive working relationships or financial dependencies. More specifically, I consider whether skeptical behavior is impeded by management who display low-risk attitudes towards fraud or by client's who are considered to be highly important to the profitability of the local office.Finally, I examine how professional skepticism is defined from a regulator's perspective. When a public company is accused of fraudulent financial reporting, regulators may determinethat the audit performed on the fraudulent financial statements was deficient. Prior research has suggested that in such cases, insufficient skepticism is often a leading cause of alleged audit failure. Within a fairness theory framework, this study examines enforcement actions against auditors between 1999 and 2009, and identifies certain factors that are associated with a citation for a lack of professional skepticism. Overall, results suggest that regulators approach the issue by determining whether auditors should have been more skeptical. Factors found to affect this determination include whether the auditor was perceived as having been aware of an elevated risk of fraud or whether the client was accused of having provided the auditor with false or misleading information during the course of their investigation.
Identifier: CFE0004417 (IID), ucf:49385 (fedora)
Note(s): 2012-08-01
Ph.D.
Business Administration, Dean's Office CBA
Doctoral
This record was generated from author submitted information.
Subject(s): auditing -- professional skepticism -- fairness theory -- fraudulent financial reporting
Persistent Link to This Record: http://purl.flvc.org/ucf/fd/CFE0004417
Restrictions on Access: campus 2013-08-15
Host Institution: UCF

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