Question

Carillion plc was a British multinational construction and facilities management services company headquartered in Wolverhampton in the United Kingdom, prior to its liquidation officially, "the largest ever trading liquidation in the UK" - which began in January 2018.

Later, in a June 2018 report on audit standards across eight accounting firms in the UK, the FRC (Financial reporting Council)- the regulatory agency of the auditing profession in the UK identified: "failure to challenge management and show appropriate skepticism across their audits." It highlighted a decline in the quality of work undertaken by the Big Four, with Carillion’s auditor KPMG performing the worst.

Required: In the light of the above, and in not more than 500 words, critically evaluate the need for maintaining professional skepticism during an audit.

Answer 1

In the given case the regulatory agency of the auditing profession in the UK identified: "failure to challenge management and show appropriate skepticism across their audits. So the auditors should maintain Professional skepticism to improve the quality of his audit work. There is greater need for maintaining Professional skepticism described as follows:-

Professional skepticism is the most familiar and basic term in the profession of auditing. Professional skepticism refers to an attitude of maintaining a questioning mind while looking into every matter during the conduct of the audit. An auditor should maintain Professional skepticism to improve the quality of his audit work.

In Professional skepticism, auditors always probe questions, critically assess the evidences and, give attention to inconsistencies to validate information which he obtains during the audit.

The auditor can use professional skepticism with the help of the latest available technological advancements. And he should provide attention to the areas which may have missed during the use of technology.

The UK’s Financial Reporting Council (FRC) has issued guidance on professional skepticism. FRC suggests that professional skepticism is the core of audit quality. The audit must provide attention for risks of material misstatement. They are suggesting how an auditor can approach the client with maintaining Professional skepticism. Through maintaining a questioning mind (Professional skepticism) the auditor can reduce the risk of matters which are overlooked during the course of doing an audit. There is also reduction in overlooking of certain matters during unusual circumstances. By maintaining Professional skepticism auditor can avoid over generalizing when he draw concussions from audit observations during the audit. It also can reduce the risk of using inappropriate assumptions in the determination of nature, timing and extent of audit procedures and evaluating the results thereof.

During the conduct of audit if the evidences obtained are contradictory, then auditor should obtain corroborative audit evidence to ensure the correctness of the evidence obtained. He should ask questions on the reliability of the documents verified by him during the course of doing an audit. If the auditor comes across any conditions indicating the possibility of fraud, then he should further look into such areas. if the auditor finds that the circumstances requires more audit procedures need to be performed in addition to those suggested in the standards, then he may also use other audit procedures prescribed.