What is Professional Skepticism?

In this episode of THE SAMPLE Leita Hart-Fanta shares her thoughts on how we are professional skeptics and goes over what the GAO says when it comes to our skepticism.

Welcome to The Sample, a quick discussion of auditing concepts and terms that will help you do your work. Conducting an audit in accordance with auditing standards is no small feat and I want to support you. We’ll be referring to the GAO, IIA and AICPA literature to bolster our conversations. Let’s get started.

Transcript

In this episode, we answer the question “What is Professional Skepticism?”

So, What is Professional Skepticism?

Well, professional skepticism is an essential quality of an auditor. We are professional skeptics. That kind of defines who we are. We’re not professional golfers. Maybe you are! Also, a professional skeptic. Not a professional basketball player. We question everybody because we need to prove all of the statements that end up in the audit report. When you get to work, you’ve got to put on a different hat. At home, you can trust your friends and family (I hope!) But in your professional life, you have to doubt everything you hear and gather enough evidence so that you’re convinced that what they’re saying and what they’re showing you is true.

Because you have to conclude on your audit report. You have to support your findings with evidence. Every statement of fact in your audit report has to be backed up with evidence. That’s the cool thing about our profession, really, is that we can be trusted to tell the truth because we test and we gather evidence for everything we say. If you’re a performance auditor following Yellow Book standards, you have to put this exact paragraph in your audit report, and it says that you’ve gathered evidence to back up your findings and conclusions based on your audit objectives. You can go as far as to say – and this is mandatory that you say this – “We believe that evidence obtained provides a reasonable basis for our findings and conclusions.”

“We believe” sounds almost religious. We’re putting our professional reputation behind the statement. We’re signing off on it. That’s a really big deal!

What Does the GAO Say About Professional Skepticism?

The GAO defines, in the Yellow Book, Professional Skepticism as a “mindset in which auditors assume that management is neither dishonest or of unquestioned honesty.” That has a lot of double negative kind of wording in it. And I like to just get straight to the point. Doubt everyone. Assume dishonesty. Prove every statement that goes in your audit report.

The GAO asks you to pause before you issue your audit report and do an overall assessment of evidence to really look at all the evidence you’ve gathered and make sure that it supports your findings and conclusions. Right? It says evidence is sufficient and appropriate when it provides a reasonable basis for supporting your findings and conclusions. Okay, so we’ve already said that. But it says evidence is not sufficient or appropriate when it carries a high risk that you’ve reached an incorrect or improper conclusion. Yeah!

Evidence is Key

What do you do when you’re a little bit iffy about your evidence? Well, get some more of it and get it from somebody else! Get independent, corroborating evidence from other sources. Just try not to get all your evidence from the auditee, you know, because they have a self-interest in making everything look okay. So don’t get all your evidence from them. You could, if your evidence, you can’t gather enough evidence to really say what you want to say, you might have to change your objective. Or reduce the scope of your audit. Okay? You might have to change your findings. I see this quite a bit. I see teams wanting to say something really compelling in their audit findings, but they can’t because they don’t have enough evidence to support this compelling statement. Look at what you’re saying and triple check that you’ve got enough evidence to back up these statements.

Or you could go ahead and use the evidence. This one’s a little bit touchy, but you’re going to have to call it out in your audit report and say, “You know what? We’re using this evidence, but it’s not that great. They do not have strong internal controls. We kind of doubt this evidence, but we’re going to go ahead and tell you about it anyway.” But you’ve got to be transparent about it.

Being a Professional Skeptic Isn’t Easy…

Now, I’m not saying being a skeptic is comfortable. It is very uncomfortable, as a matter of fact, to sit with someone and say, “I don’t believe you.” But that’s really our job! So every job has a bit of uncomfortableness to it, and this is a big one for us.

There is a way that you can kind of slide out of personal accountability for this and not be lying completely. You could blame it on the QC reviewer. You could say, “As my work goes through quality control, they’re going to ask me for proof of what you’re saying. Can you show me something that proves what you’re saying?” And that way you can pretend like someone else is making you be rude. But, to be a good auditor, you should employ rigorous skepticism. Show me, prove to me what you’re saying. Point me to some evidence so that I can complete my audit and feel comfortable that this is true. Include the proof in your audit documentation. Tie every statement of your audit report back to evidence. And, instead of the little phrase that some auditors use which says, “Trust, but verify”, I’m going to say, “Nope! Doubt, and thus, you must verify.”

Want to Know More?

Want to learn more about this topic and earn some CPE hours at the same time? I recommend our Essential Skills Self-Study Bundle, which has a set of videos in it called Government Audit Training, which takes you through the process of concluding, gets your objective, writing a finding and then supporting that with evidence and testing. Also, you’re going to need some Interviewing Skills in order to extract this evidence that you need from the client and so, from the auditee. So I recommend that you take that course. And then there’s a very funny course called Audit Documentation: Not Documented, Not Done. All these will help you enhance your professional skepticism and get the evidence that you need to back up what you’re saying in your audit report.

And that wraps it up for another episode of The Sample. True to the nature of a sample, we didn’t talk about everything, so you’ve probably got questions. Write to me at leita@yellowbook-cpe.com and I’ll do my best to fill in the blanks. Thanks for playing.