Final Exam Professional Skepticism Lecture 15

Professional Skepticism

= “an attitude that includes a questioning mind and a critical assessment of audit evidence

• Trust, But Verify

Characteristics of Skeptics

• Questioning Mind

• Slow to Form Judgments

• Search for Knowledge (Curiosity)

• Interpersonal Understanding (Desire to Understand People)

• Autonomy (Reluctance to Accept Other’s Claims)

• Self-Esteem (e.g., Self-Confidence)

Typical Skeptical Behaviors

• Expanded Information Search - Seaching on computer

• Increased Identification of Contradictions - find information that doest make sense

• Increased Generation of Alternative Explanations - go on yahoo instead of google

• Increased scrutiny of information obtained from and about
  people - question yahoo

Environmental/Situational factors

• Client, regulatory, industry

• Lack of independence / trust management

• Time pressure (deadlines)

• Limited resources

• Misstatement risk

Auditor Characteristics

• Ambiguity tolerance / Need for cognitive closure
• Ethical disposition
• Experience
• Industry specialization
• Overconfidence
• Bias caused by self interest
• Rush to “solve”

Variants of Skepticism

1. Conditionally Skeptical

2. Invariably Skeptical

Conditionally Skeptical

• Investigate “blips” that appears on your professional “radar screen” (intuition)

• Become wary and follow-up on red flag cues

Invariably Skeptical

• Regardless of past positive experiences

• Regardless of good reasons to trust management

• Costlier for society

System 1

Quick thinking

Heuristics

• rules of thumb

Overconfidence

Tendency to be overconfident in our judgment abilities

Availability

Tendency to judge likelihood of events by how readily available specific examples are in our memory