## **Learning Outcomes**

After reading this article, you should be able to:

- Explain the meaning and importance of professional scepticism and judgement in audit fieldwork.
- Identify typical ethical dilemmas faced during fieldwork and the principles guiding ethical behaviour.
- Recognise common ethical threats and recommend appropriate safeguards.
- Apply scepticism and judgement to field scenarios, including the evaluation of audit evidence and bias.
- Select correct auditor responses when professional ethics are challenged in real audit environments.

## **ACCA Audit and Assurance (AA) Syllabus**

For ACCA Audit and Assurance (AA), you are required to understand both professional scepticism and judgement, and how to address ethical threats that arise, particularly during audit fieldwork. Specifically, this article addresses:

- The requirement to plan and perform audits with appropriate professional scepticism and judgement. (ISA 200, ISA 220)
- The nature of ethical principles, threats to independence, and use of safeguards in practice. (ACCA Code of Ethics, IESBA)
- How to identify, evaluate, and respond to ethical dilemmas during evidence-gathering. (Fieldwork situations)
- Application of professional scepticism to challenging or uncertain audit evidence. (ISA 500, ISA 240)
- Auditor actions where bias, pressure, intimidation, or conflict of interest are encountered.
- Documentation of ethical decision-making during audit assignments.

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. State the difference between professional scepticism and professional judgement. Briefly explain how each is applied during audit fieldwork.
2. You encounter a client manager pressuring you to accept oral explanations as sufficient evidence. Which ethical threats may arise, and what safeguard(s) should be considered?
3. True or false? An auditor must always trust management if previous audits were completed without issue.
4. Give two examples of ethical dilemmas auditors may face when gathering evidence onsite.
5. What is the correct response if you identify an ethical threat that cannot be reduced to an acceptable level during fieldwork?

## **Introduction**

Professional scepticism and judgement are essential during every stage of an audit, but ethical dilemmas often arise most sharply during fieldwork—when auditors interact directly with client staff and evaluate evidence in real-time. During these situations, your ability to question evidence, remain alert to bias, and uphold ethical values determines audit quality and public trust.

> **Key Term: professional scepticism**
> A questioning mind and critical assessment of evidence, remaining alert to risk of misstatement due to fraud or error.
>
> **Key Term: professional judgement**
> The application of audit knowledge, experience, and ethics to reach decisions about audit actions or conclusions.

Maintaining scepticism and sound ethical judgement in the field is challenging, especially when facing pressure, incomplete information, or conflicts of interest. This article explains what auditors must do to remain objective and professional when ethical threats arise while collecting and evaluating evidence.

## Professional Scepticism: The Auditor's Attitude in Fieldwork

Fieldwork tests an auditor’s scepticism. Typical tasks include sampling, inspecting records, interviewing staff, and investigating anomalies. In these moments:

- Scepticism means never accepting explanations at face value, especially if evidence conflicts.
- Auditors must probe for corroborating evidence and consider alternative explanations for balances or transactions.
- When encountering contradictory or vague information, auditors document concerns and challenge conclusions.

> **Key Term: bias**
> An unintentional or deliberate influence causing the auditor to stray from objectivity, leading to unreliable conclusions.

Even subtle client behaviour may indicate bias, concealment, or potential fraud. Sceptical auditors constantly ask, “Is this evidence reliable? What else could explain these observations?”

### **Worked Example 1.1**

**Scenario:** During stocktake, the store manager insists the physical inventory matches the records, but several boxes are shrink-wrapped and cannot be easily inspected. The manager urges the auditor to “just tick them off.”

> **Answer:** The auditor should remain sceptical, decline to confirm those items without opening them, and request evidence of their contents. Accepting the manager’s word would be a breach of scepticism, and could conceal errors or misstatements.

## Exercising Professional Judgement: Making Sound Audit Decisions

Judgement is required whenever there is uncertainty or when alternative actions are possible. In fieldwork, this means:

- Deciding when gathered evidence is “sufficient and appropriate.”
- Determining the nature and extent of further audit procedures when issues arise.
- Assessing the credibility of oral explanations or management representations.
- Carefully weighing risks, materiality, and the possible effect of undetected misstatements.

Judgement is most important when evidence is incomplete, ambiguous, or when client staff are uncooperative.

> **Key Term: ethical dilemma**
> A situation in which an auditor must choose between conflicting principles, interests, or pressures, often with no clear "right" answer.

In these situations, the auditor must be guided by both technical standards and core ethical principles: integrity, objectivity, and independence.

### **Worked Example 1.2**

**Scenario:** An audit supervisor receives hospitality (an expensive dinner invitation) from a client director during fieldwork. The supervisor believes declining may offend the client.

> **Answer:** Accepting hospitality above trivial value creates a self-interest threat to independence. The supervisor should politely decline and document the offer, recognising this as an ethical dilemma that must be resolved in favour of professional objectivity.

## Typical Ethical Dilemmas During Fieldwork

Auditors commonly face situations such as:

- Pressure to accept insufficient or weak evidence.
- Requests to ignore errors judged by the client as “immaterial.”
- Client staff offering gifts or undue hospitality.
- Proposed “off-book” explanations for missing documentation.
- Unexpected discovery of fraud or illegal acts.

Each scenario presents one or more ethical threats that auditors must understand and address.

> **Key Term: ethical threat**
> A circumstance that may compromise compliance with ethical principles (e.g., self-interest, self-review, advocacy, familiarity, intimidation).
>
> **Key Term: safeguard**
> An action or measure that eliminates or reduces an ethical threat to an acceptable level.

Applying the ACCA Code of Ethics, auditors identify the nature of each threat and consider safeguards such as team rotation, consultation, or declining/withdrawing from the engagement if threats cannot be managed.

### **Worked Example 1.3**

**Scenario:** While reviewing invoices, an audit junior suspects forged signatures but is told by the client accountant to “let it go,” warning it could “get people in trouble.”

> **Answer:** This is an intimidation threat and a possible indicator of fraud. The auditor must document the incident, escalate it to the audit manager, and plan further substantive procedures to assess genuineness and completeness of records. The threat cannot be ignored.

## Applying Scepticism and Judgement to Evidence

Audit evidence must be both sufficient (quantity) and appropriate (quality). During fieldwork:

- Always question explanations that are vague, inconsistent with records, or lack documentation.
- Treat management representations as the lowest tier of evidence, corroborated wherever possible.
- Document professional judgement—especially where evidence is conflicting or incomplete.

Auditors should never let client pressure, time constraints, or a desire to finish quickly compromise scepticism or the ethical standards required by their profession.

### **Exam Warning**

> Accepting explanations or evidence without further testing due to time pressure or familiarity with the client is a common exam error and a real-world risk. Always document how scepticism and judgement influenced your final audit conclusions.

## Managing Ethical Threats and Responding to Dilemmas

Auditors must be proactive:

- Identify all potential threats arising during fieldwork.
- Evaluate the significance of each threat, considering client influence and team circumstances.
- Apply appropriate safeguards: team changes, supervisor reviews, obtaining second opinions, or escalating concerns.
- If an ethical threat cannot be mitigated to an acceptable level, the engagement must be declined or discontinued.

All decisions and actions regarding ethical dilemmas must be thoroughly documented in the audit working papers.

## **Summary**

Professional scepticism and sound judgement are essential for auditors, especially during fieldwork when evidence quality and ethical threats are tested. Recognising and actively responding to ethical dilemmas maintains audit integrity and public trust. Auditors who rely on evidence, think critically, and uphold ethical values ensure their conclusions are robust and defendable.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Explain what professional scepticism and professional judgement involve during fieldwork.
- Identify ethical dilemmas and threats that commonly arise while gathering evidence.
- Apply scepticism to challenge weak, incomplete, or biased evidence.
- Evaluate ethical threats and recommend safeguards that maintain auditor objectivity.
- Recognise when an ethical threat cannot be mitigated and withdrawal is required.
- Document how scepticism and judgement influence audit conclusions and responses.

## **Key Terms and Concepts**

- professional scepticism
- professional judgement
- bias
- ethical dilemma
- ethical threat
- safeguard

Professional scepticism and judgement - Ethical dilemmas during fieldwork