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Apply Professional Skepticism, PCAOB Reminds Auditors

S.J. Steinhardt
Published Date:
Apr 26, 2023

iStock-602302390 Spreadsheet Audit Books

Auditors must remain vigilant as they perform their work, the Public Company Accounting Oversight Board (PCAOB) has told auditors in a new report.

“PCAOB staff reminds auditors of the importance of critically assessing the firm’s capabilities, obtaining proper understanding of the company they are auditing, and performing work with due professional care and professional skepticism,” the report states. “These matters are particularly important in circumstances where changes to economic conditions or other factors affect the company. ... The application of professional skepticism—an attitude that includes a questioning mind—is critical to planning and performing high quality audits and ensuring investors are protected."

In a section on client acceptance or continuance, it advised, “Before accepting a new client or continuing an existing relationship, it is critical that the firm determine whether it already has in place or can obtain sufficient capacity to plan and perform the audit in compliance with PCAOB standards. The auditor’s determination is informed, in part, by obtaining a sufficient understanding of the prospective or existing client’s business to an extent that enables the firm to make a reasoned assessment of the firm’s capacity to properly plan and perform the work.”  

Examples of when such an assessment should be made include “changes in a company’s operational strategy (e.g., investment in digital assets) [that] might create new business risks and necessitate changes to staffing and other resources (e.g., audit software) in order to properly conduct the audit,” the report states.

“The process of obtaining an understanding of the company’s business continues after the auditor decides to accept the audit engagement,” it continued.

The professional skepticism responsibility also continues when evaluating the results of the audit, the report warned.

“[A]uditors are reminded of their responsibility to take into account all evidence obtained when evaluating the results of the audit, including information regarding potential bias in management’s judgments about the amounts and disclosures in the financial statements,” the report stats. “When evaluating management bias, it is important for auditors to consider the incentives and pressures on management to manipulate the financial statements.”

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