Professional scepticism and judgement - Sceptical mindset an...

Learning Outcomes

After reading this article, you will be able to explain the meaning and importance of professional scepticism and judgement in the audit process. You will learn what a sceptical mindset looks like in practice, identify frequent cognitive biases that threaten auditor objectivity, and apply approaches to maintain audit quality. You will be able to spot and explain bias in audit scenarios and describe how to apply appropriate scepticism and sound judgement when forming audit conclusions.

ACCA Audit and Assurance (AA) Syllabus

For ACCA Audit and Assurance (AA), you are required to understand the critical role of professional scepticism and judgement throughout the audit. Be ready to:

• Define professional scepticism and judgement, and explain why they are required by the ISAs.
• Recognise what a sceptical mindset means in practical audit situations.
• Identify common cognitive biases (e.g., confirmation bias, anchoring, overconfidence) and their effect on audit evidence and conclusions.
• Apply strategies to guard against bias and maintain objectivity during planning, evidence gathering, and review.
• Distinguish between appropriately sceptical responses and mechanical, checklist-driven procedures.
• Justify audit judgements and document their rationale in light of the evidence.

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. What does it mean to approach audit evidence with professional scepticism?
2. Give two examples of cognitive bias in audit decision-making and explain their possible impact.
3. In an audit scenario where management confidently denies any issues with estimates, how should an auditor respond?
4. State one practical step auditors can take to reduce the risk of bias when forming audit judgements.

Introduction

Professional scepticism and judgement are fundamental expectations for any auditor. Both are explicitly required by International Standards on Auditing (ISAs), supporting all risk assessment, evidence gathering, and reporting work. A sceptical mindset and awareness of common audit biases are essential for achieving audit quality and providing confidence in audit conclusions.

Key Term: professional scepticism
An attitude that includes a questioning mind, alertness to possible misstatement arising from fraud or error, and a critical assessment of evidence.

Key Term: professional judgement
Applying relevant training, knowledge, and experience to make informed decisions during the audit, especially where the appropriate course of action is not obvious.

THE SCEPTICAL MINDSET IN AUDIT

Professional scepticism means more than doubting everything or treating all information as suspect. It is about neither believing nor automatically disbelieving what management and others say. Instead, auditors look for cooperation between different sources of evidence, remain alert to circumstances suggesting risk, and resist making premature conclusions.

Key aspects of a sceptical mindset:

• Maintaining independence and objectivity throughout the engagement.
• Continuously questioning whether the evidence obtained is reliable, especially when evidence from different viewpoints conflicts.
• Avoiding 'confirmation bias'—the tendency to look for evidence that supports what you already suspect or want to be true.

Auditors should always be alert for situations where:

• Evidence contradicts other obtained evidence.
• Explanations do not match up with information elsewhere.
• There are unexplained changes in processes, systems, or results.
• Documents appear inconsistent, incomplete, or altered.

Key Term: confirmation bias
The tendency to seek or interpret information that supports pre-existing beliefs, overlooking evidence that may contradict those beliefs.

Key Term: anchoring bias
Fixating on initial information (such as prior year figures or management's estimate) when forming a judgement, and failing to adjust for new evidence.

Key Term: overconfidence bias
Overestimating one’s abilities, knowledge, or the correctness of preliminary conclusions, leading to insufficient evidence gathering or weak challenge to management.

Key Term: availability bias
Placing more weight on information that is most easily retrieved, recent, or memorable, rather than fully considering all relevant data.

Signs of Lack of Scepticism

• Accepting management explanations without corroborating evidence.
• Ignoring contradictory or inconsistent results.
• Relying on last year’s audit work and assuming little has changed.
• Concluding tests before achieving sufficient, appropriate evidence.

Worked Example 1.1

During stock count attendance, the auditor asks about differences between the inventory listing and the physical count. The store manager assures the auditor all differences are 'timing issues' but offers no documentation. What should the auditor do?

Answer:
Apply professional scepticism by seeking independent evidence (e.g., investigating cut-off records, reviewing inventory movements) instead of accepting the explanation at face value.

COMMON AUDIT BIASES

Cognitive biases can creep into auditor judgement and impair objective decision-making. Awareness of these biases is key for upholding audit quality.

Typical biases affecting auditors:

• Confirmation bias: Selectively gathering evidence that supports initial expectations.
• Anchoring bias: Over-relying on a management estimate or prior year figure, despite changes in circumstances.
• Overconfidence bias: Failing to obtain additional evidence due to belief in one’s own assessment.
• Availability bias: Placing too much weight on the most recent case, or on dramatic past audit issues.

Worked Example 1.2

An auditor is reviewing a long-standing client’s provision for doubtful debts. Last year, no major write-offs were found. This year, despite some overdue accounts, the auditor takes no further action.

Answer:
The auditor has likely been influenced by anchoring and availability bias, assuming history will repeat. Proper application of professional scepticism requires testing the current year’s balances based on present conditions.

Practical Steps to Counter Bias

• Plan for challenge: include evidence from multiple, independent sources.
• Assign review points where experienced staff evaluate significant judgements.
• Pause and re-evaluate where evidence conflicts.
• Document the rationale for key conclusions and alternatives considered.

Exam Warning

Exam Warning
Examiners frequently penalise answers that propose 'obtaining written representation' or 'asking management' as standalone evidence. Auditors should always seek independent or corroborating evidence and avoid over-reliance on management explanations, especially where risk is high.

APPLICATION OF PROFESSIONAL SCEPTICISM AND JUDGEMENT

Professional judgement is required at every stage of the audit, from planning to reporting. It involves weighing evidence, resisting pressure to reach easy conclusions, and recognising uncertainties in estimates.

Steps to effective professional judgement:

• Clearly identify the issue and required standard.
• Consider all relevant evidence, not only what is easy to access.
• Challenge assumptions, particularly those made by management.
• Justify conclusions by reference to ISA requirements and the actual evidence gathered.
• Reflect on whether alternative explanations have been reasonably excluded.

Worked Example 1.3

You are auditing a warranty provision. Management uses a percentage based on previous years, but this year a new product has been launched. How should you approach the estimate?

Answer:
Do not anchor on prior years’ rates. Assess whether warranty risks have changed, analyse subsequent claims, and seek external support for management’s assumptions. Document the reasoning for accepting or questioning the estimate.

Revision Tip

Revision Tip
When answering case scenarios, clearly state the bias or error at risk (e.g., 'anchoring bias could occur here'), explain the impact, and describe how to respond professionally.

Summary

A sceptical mindset is central to audit quality. Auditors must balance trust and doubt, always seeking evidence that both supports and challenges management’s assertions. Cognitive biases such as confirmation, anchoring, overconfidence, and availability can threaten impartiality unless actively managed. Professional judgement is not optional; it must be grounded in facts, rigorous testing, and clear documentation. Applying these principles will improve both audit outcomes and exam performance.

Key Point Checklist

This article has covered the following key knowledge points:

• Define professional scepticism and judgement; explain their necessity in auditing.
• Recognise sceptical mindset behaviours and apply them in audit situations.
• Identify and explain common audit biases (confirmation, anchoring, overconfidence, availability).
• Apply practical steps to reduce or counteract audit bias and safeguard objective decisions.
• Describe how to use professional scepticism and judgement in gathering, evaluating, and concluding on evidence.

Key Terms and Concepts

• professional scepticism
• professional judgement
• confirmation bias
• anchoring bias
• overconfidence bias
• availability bias