AUDIT REGULATOR STRESSES PROFESSIONAL SKEPTICISM

Anaheim, Calif. -- Public Company Accounting Oversight Board member Jeanette Franzel told a group of accounting educators that lack of professional skepticism is one of the main reasons for the prevalence of audit deficiencies found in the PCAOB's inspections of the work of auditing firms.

In a speech in early August at the American Accounting Association's annual meeting, Franzel noted that academic research and PCAOB standards and oversight emphasize that professional skepticism is fundamental to the role and performance of auditors. "Yet the PCAOB and other regulators around the world have expressed concern about the continued high rate of audit deficiencies identified in their inspections and other oversight activities," she said. "And many of these deficiencies appear to be associated with the insufficient exercise of professional skepticism."

She pointed out that PCAOB professional standards demand the appropriate application of professional skepticism throughout the audit process, and emphasize that professional skepticism is a component of the auditor's general duty of care that applies throughout the audit and is an attitude that includes a questioning mind and a critical assessment of the appropriateness and sufficiency of audit evidence.

"The three elements of professional skepticism -- auditor attributes, auditor mindset and auditor actions -- permeate the entire audit process and are integral to audit quality," she said. "These elements of professional skepticism interact dynamically as auditors respond to conditions and pressures that change or arise during the audit. As a result of skeptical judgments made during the planning and performance of the audit, for example, the level of skill and expertise needed, as well as other auditor actions and audit work conducted, are likely to change during the audit."

Franzel acknowledged that the underlying reasons for a failure in professional skepticism are oftenmultifaceted and hard to pinpoint.

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