Auditing: A Journal of Practice & Theory

Rebekah Heath, PhD, CPA, CIA
May 1, 2014
Why the Continuing Interest?
• Much has been discussed recently about the
importance of PS as auditors are not
perceived as consistently behaving skeptically
or as varying substantially in their expression
of skepticism (Hurtt et al., 2008).
• PCAOB Staff Audit Practice Alert No. 10,
Maintaining and Applying Professional
Skepticism in Audits, was published on
December 4, 2012.
Staff Audit Practice Alert
No. 10
• Certain circumstances can impede the appropriate
application of PS and allow unconscious biases to
– Incentives and pressures resulting from certain conditions
inherent in the audit environment (i.e., to build/maintain a
long-term audit engagement, avoid significant conflicts
with management, keep audit costs low, and/or cross-sell
other services)
– Scheduling and workload demand (e.g., creates an
incentive to seek audit evidence that is easier to obtain
rather than evidence that is more relevant and reliable, to
obtain less evidence than is necessary, or to give undue
weight to confirming evidence)
– Inappropriate level of confidence or trust in management.
A PS Continuum
• The definition we have been working is a
“neutral” view of skepticism.
– This viewpoint forms the basis of US public
accounting standards.
• Standards that focus on fraud suggest more of
a forensic-auditing mindset in which auditors
assume some level of dishonesty.
The PS Continuum
• Glover & Prawitt propose the use of a
professional skepticism continuum that
acknowledges that the appropriate
application of PS will depend on the risk
characteristics of the particular account and
assertion being audited.
A Regulator’s View
• Nelson (2009) notes that “as a practical
matter, auditors should note that regulators
appear to take more of a ‘presumptive’ doubt
perspective, as they typically refer to
professional skepticism as something that was
missing when an audit failure has occurred.”
• However, taking such a perspective in auditing
all assertions would result in the collection of
MORE evidence than the other perspectives.
Selected Research on PS:
• Does PS change over time, and if yes, how
does it change? (Ritter, Farmer, & Trompeter, 1987)
– PS was very high when students left college.
– Skepticism decreased over time as individuals
moved from staff auditors to audit managers.
– Partners exhibited approximately the same
amount of PS as the students.
• The authors hypothesize that those individuals who
exhibited the higher levels of PS were more likely to
become partner.
Selected Research on PS:
• Vitalis (2012) used an economics lab setting to
investigate subject reaction to risk cues that
emulated experience effects similar to that of
– Student subjects received cue information that
signaled a high or low risk situation.
– Subjects could purchase additional cue information to
help them maximize income over a period of time.
– One pattern of cues was designed such that risk cues
were available but subjects experienced a long series
of results without a high-risk situation.
Vitalis (2012) cont’d:
• After some period of time (around 25 periods) a
significant number of subjects no longer
purchased risk information and thus were unable
to identify that the series had changed to a highrisk situation.
• This would be analogous to an auditor seeing a
high risk situation and investigating it (often at
different clients) over time and never finding a
problem. That experience changes behavior!
Vitalis (2012) cont’d:
• Vitalis found that when he primed the subject
that each period was a separate, unique event,
the subjects remained more skeptical.
• Thus,
– Audit partners must keep teams focused and
challenged on their conclusions at all times.
– Auditors need to be trained to understand the
uniqueness in every situation.
– Developing an understanding of a client’s business
and business strategy allows the auditor to
understand the uniqueness of each company and
argues against mandatory audit firm rotation.
Is it possible to measure PS?
• Hurtt (2007) has devised a systematic approach
to assessing PS by using a 30-question instrument
that consists of six separate characteristics of
Suspension of judgment
Questioning mind
Search for knowledge
Interpersonal understanding
Training to Improve PS
• Glover & Prawitt (2013) offer a few examples
of approaches that have been shown to be
effective in enhancing auditor PS:
– Training in the application of various levels of PS
across the continuum.
– Training in proactive framing (i.e., reframing issues
to see different perspectives)
– Developing auditors’ cognitive skills linked to
creative problem solving (e.g.,divergent and
convergent thinking)
Training to improve PJ as well as
fundamental and specialized
• Training specific to industry, operations, valuation
methodologies, IT controls, and accounting so as
to better identify risk
• Training about the importance of setting
independent expectations of unaudited account
balances prior to focusing on the client’s
recorded amounts.
• Enhanced fraud training
• Training in conflict resolution and difficult
• Glover, S.M. and D.F. Prawitt. 2013. Enhancing Auditor Professional
Skepticism. Electronic copy available at:
• Hurtt, K., M. Eining and R.D. Plumlee. 2008. An Experimental
Examination of Professional Skepticism. Electronic copy available
• Nelson, M.W. 2009. A Model and Literature Review of Professional
Skepticism in Auditing. Auditing: A Journal of Practice & Theory, 28
(2): 1-34.
• Ritter, L.E., T. Farmer and G. Trompeter. 1987. An Investigation of
the Impact of Economic and Organizational Factors on Auditor
Independence. Auditing: A Journal of Practice & Theory, Fall: 1-14.
• Vitalis, A. 2012. Experimental Tests of Experience and Costly Risk
Cues on Risk Assessment Decisions, unpublished working paper.

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