Definition
AU-C 200 defines professional skepticism as an attitude that includes a questioning mind, being alert to conditions that may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence. The auditor must maintain it throughout the audit, including when past experience suggests management is honest.
Why it matters in an audit or review
Skepticism guards against bias. It means corroborating management's explanations, noticing inconsistent evidence, and not accepting weaker evidence because the client has been reliable. Peer review and regulator inspection findings can trace to missing skepticism: accepting estimates without challenge, or accepting an unusual transaction's stated purpose without checking it. The auditor also stays alert to the reliability of documents and to responses that look evasive or inconsistent.
Example
Management tells the auditor that a $600,000 customer payment received in January relates to December shipments, so no cutoff adjustment is needed (illustrative). Instead of accepting that, the auditor inspects the shipping documents and finds the goods left the dock on January 3. Skepticism produced evidence that contradicted the explanation, and the entry is proposed.
Common mistakes
Treating skepticism as distrust of management. It is a neutral habit of testing explanations against evidence.
Sources
- AICPA, AU-C Section 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards
- AICPA, AU-C Section 240, Consideration of Fraud in a Financial Statement Audit
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error