Professional scepticism is a skill that auditors build up over time. But it is a skill that auditors need to build over time, constantly sharpening their tools to apply it over multiple industries, stakeholders and tasks. Being unaware of current trends and the trials and tribulations of multiple industries can seriously reduce the audit quality, deeming your results unreliable as a consequence.
One of the largest ongoing factors is cognitive, or unconscious, bias, whereby an auditor is automatically applying judgement to a particular process or action within the auditing process - seriously hindering the audit performance.
But how large of an impact can bias actually have on professional scepticism in the auditing process, and how can accountancy firms improve their processes to stop this from happening? Read on to find out more.
Throughout the auditing process, professional scepticism is among the key tools that professionals must maintain to gauge an accurate assessment of any evidence provided.
Professional scepticism is built around a number of elements including inquisitive mindsets, suspension of judgement, knowledge acquisition, interpersonal understanding, autonomy and self esteem. When applied subjectively these skills will offset the natural bias towards paying clients, and a more accurate and demonstrable audit may be structured.
In 2015, the International Ethics Standards Board for Accountants (IESBA, the International Accounting Education Standards Board (IAESB), and the International Auditing and Assurance Standards Board (IAASB), set up a collaborative working group with the aim of strengthening the concept and application of professional scepticism within the auditing process.
One of their main observations was that the awareness of personal traits and biases is essential to exercising professional scepticism. Cognitive bias, or our unconscious ability to apply non-rational bias towards decision making, can affect an audit at several stages of the process. In 2017, the Association of Chartered Certified Accountants delved deeper into cognitive biases, outlining 12 ways types and their effects on the auditing process.
Two examples are anchoring bias and selective perception.
Anchoring bias refers to a person's natural affinity to use an initial piece of information as a benchmark to judge additional information. For example, if an auditor is given an opinion or evidence by a member of senior management, the quality and importance of any further information may be judged against it, rather than collected and analysed by its own merits.
Without addressing anchoring bias through professional scepticism, information critical to the audit may be ignored.
Selective perception is a reference to an auditing professional’s unconscious bias towards new information according to their own perception of the world. For example, if an auditor is presented with a certain financial challenge in an uncommon industry, they may apply their own knowledge or experiences of an industry they are more experienced in.
If selective perception isn’t in the forefront of an auditing professional's mind, it could lead to bad decision making, or an assumption of facts.
There are a myriad of ways that you can prepare your auditing team to practise proper professional scepticism in future areas. While the beauty lies in experience, professionals can be made aware periodically of the different types of bias, and how they might affect the auditing process.
Connecting with other professionals for discussion-based meetings can bring bias awareness to the front-of-mind. Through associations like INAA, accounting firms and individuals can connect with the latest examples, innovations and documentation within the auditing sector, effectively sharpening their tools for future practices.
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