ICAEW wants more debate on auditor scepticism

ICAEW is calling for a more ‘substantial and constructive’ debate about auditor scepticism to address public concerns in what it calls the ‘hostile current environment’ regarding corporate reporting

The institute has published a report capturing insights from auditors, and those who train and regulate them. It highlights what auditors are doing and recognises that they have lessons to learn, but also says that it is unhelpful to use ‘lack of auditor scepticism’ as a catch-all explanation for anything that goes wrong on audits.

The report says the temptation to simply call for ‘more scepticism’ should be resisted and highlights the need for a shared approach to the issue.

Katharine Bagshaw, ICAEW manager, auditing standards, said: ‘Scepticism is about quality, not quantity – asking the right questions, not just a lot of them. There comes a point where asking more questions “just in case” becomes ineffective. There are deadlines to be met and auditors have to move on. The key is knowing when to do that.’

The report says auditors first need experience and an intimate understanding of the business. They then need to step back to see the bigger picture. Methodologies also need to be sufficiently robust to withstand the pressures that build towards the end of a complex audit, and to enable auditors to challenge management effectively from start to finish.

Many interviewees believed recent pressures such as increasing subjectivity in accounting requirements and rising expectations among regulators have contributed to an increase in scepticism compared to a decade ago. Interviewees also emphasised that scepticism is not just for auditors. Audit committees, management and internal auditors should also demonstrate how they have challenged and probed systems, controls and financial information.

Bagshaw said: ‘Preparers of accounts, in particular, need to exercise scepticism themselves before handing information over to external auditors. Most of ICAEW’s members are in business, there is a shared responsibility for scepticism: it needs to be exercised by all of our members, not just auditors.’

ICAEW’s report, Scepticism: The Practitioners’ Take, is here.

Report by Pat Sweet

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