Research on Auditor Professional Skepticism: Literature Synthesis and Opportunities for Future Research

Abstract

SUMMARY Both researchers (e.g., Nelson 2009) and regulators (e.g., the PCAOB) have emphasized the importance of exercising the appropriate level of professional skepticism when conducting an audit. However, professional skepticism remains a hard concept to define and measure. In addition, it is often difficult to determine if a lack of skepticism is the primary cause of audit deficiencies and if so, what factors led to the lack of skepticism. The purpose of this paper is threefold: (1) extend the work of Nelson (2009) by synthesizing research related to auditors' professional skepticism to identify antecedents to both skeptical judgment and skeptical action, (2) identify areas where research is lacking on a particular dimension and suggest avenues for future research, and (3) discuss the implications of research findings for regulators and auditing professionals. We adopt two foundational aspects of the framework introduced in the seminal paper by Nelson (2009), which proposes that lack of skepticism can either be the result of a failure in problem recognition (lack of skeptical judgment) or a failure to act on a problem recognized (lack of skeptical action). We organize research studies into four categories of antecedents: studies relating to auditor characteristics, evidence characteristics, client characteristics, and environmental characteristics. We find that while research studies provide insights into both the antecedents to skeptical judgments and actions, the majority of research efforts to date have focused on the antecedents to skeptical judgments and on auditor characteristics in particular. Research findings have implications for practice, but in order to understand how skeptical judgment translates into skeptical action, additional research on skeptical action will need to be conducted.

Professional Skepticism and Auditors’ Assessment of Misstatement Risks: The Moderating Effect of Experience and Time Budget Pressure

“…The application of professional skepticism in the audit procedures may be difficult without a proper guidance by the firms. The lack of understanding of the concept of professional skepticism leads auditors to face difficulties in complying with the professional requirements (Hurtt et al, 2013). Thus, audit firms must assume the responsibility of implanting the professional skepticism attitude among audit staff at both the firm and individual levels.…”

“…Evidence shows that adoption of professional skepticism significantly enhances auditors' performance in relation to assessing risks of fraudulent material misstatements (Hurtt et al, 2013;Hussin and Iskandar, 2013;Saksena, 2010;Rose, 2007). Such behavior conforms to the auditing standards requirement, which prescribes auditors pay serious attention to the possibility of fraud occurrence (ISA 240 2008).…”

“…Upon reviewing the professional skepticism related literature, Hurtt et al (2013) postulate the need for further investigation on the potential influence of experience and work pressure on auditors' professional skepticism. In line with their suggestion, this study examines the impact of individual auditors' experience and time budget pressure on the development of auditors' professional skepticism and their assessment of material misstatement risks.…”

Comments of the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Concept Release on Audit Quality Indicators, No. 2015-005, July 1, 2015

“…This professional judgment extends to the amount of professional skepticism that auditors possess and act upon while conducting the audit. Thus, professional skepticism is embedded in not only the audit team's culture, but the entire firm's culture and the assessment of professional skepticism should be considered as an indicator of audit quality (Hurtt, Brown-Liburd, Earley, and Krishnamoorthy 2013).…”

Auditor Scepticism and Financial Crises: The Nigerian Factor

“…The concern for professional audit through scepticism has led many writers to ask some useful questions like; "How should professional scepticism be enhanced?" [16].…”