Question

what is town and cable inc. professional skepticism in auditing

Answer 1

Professional skepticism in auditing is an attitude that consists of a questioning mind. It also involves being alert to conditions which may possibly involve possible misstatements. The possible misstatements can happen either due to an error or a fraud.

In the case of Town and Cable Inc. Petra is doing the audit and comes across several entries consisting of a debit to account no. 22000 and a credit to account no. 54400. The amounts of all these entries are individually very small but on adding up aggregates to a large and significant amount. Petra will now have to critically assess the audit evidence and analyze the memo of November 2 and the several journal entries to determine if these entries were made due to an error or to perpetrate a fraud.

Petra apparently has information that brings into question the reliability of documents and responses to inquiries. There is a clear indication of possible fraud and hence Petra will have to obtain a lot of audit evidence on which she will base her opinion. She will have to question the contradictory audit evidence as well as the reliability of response to inquiries. She will then have to consider whether the memo is genuine and whether the audit evidence is sufficient and appropriate. Lastly she will have to consider if past experience of honesty and integrity of the management of the company can be relied on or not.