Professional scepticism requires ‘right’ culture
[Published By Accountancy Age]
May 4, 2023
A priority for accounting firms should be to create the “right” culture so auditors can consistently complete high quality audits even when they are under intense pressure, according to Steve Maslin, independent non-executive at mid-market firm Crowe.
Maslin says that, in response to lingering concerns around professional scepticism in audit, he has consulted a clinical psychologist to explore strategies for cultivating audit teams’ awareness of their cognitive processes when faced with pressure from management.
While training and remuneration are important issues for professional scepticism, Maslin believes it is essential that firms create the correct culture for auditors to work consistently in pressurised situations.
“I think this is a really important topic for auditors to explore,” he states.
Charles Hill, director at Cottons Group, echoes this view and notes that all staff, especially junior employees, must work in a positive environment where they feel comfortable communicating any doubts they may have to their superiors.
Additionally, Hill says that the main issue regarding professional scepticism is human behaviour, particularly when working towards tight deadlines and budgets.
Managing the delicate balance between independence and understanding the intricacies of a business while establishing a constructive rapport with management and governance personnel is crucial for auditors to ensure audit quality, he adds.
Hill also believes he is not alone when he says good scepticism is linked to experience in the role.
“Having the nose to tell when something doesn’t feel right not only requires good technical knowledge, but also sound knowledge of the client and industry under scrutiny.”
Professional scepticism training
It is integral that firms employ junior staff to complete many audit fieldworks tests so they can understand what can go wrong in the audit process, Hill adds.
At assignment level, employees must be made aware of key risk areas in audit and should be encouraged to challenge these areas, he says.
“We tend to focus on training our staff on what’s not there from information or explanations, and not taking evidence at face value. Ultimately though, scepticism is a skill that can only be taught to an extent; some people either get it or don’t.”
Furthermore, Hill feels firms are now acknowledging that alterations are needed areas such as methodologies, working practices, training, recruitment, and retention if they are to meet the levels of expectations now being set.
But Maslin states that technical training is the “relatively easy” part, and the audit community should take responsibility for the parts they control. However, he adds that improvement is still required by the industry.
“I worry about the attractiveness of the profession at more senior levels and whether audit teams are adequately resourced.”
Structural changes required?
The accountancy industry has been hit with a series of fines recently over audit failings. Most recently, KPMG was sanctioned by the FRC for its audit of The Works.
“The need for more scepticism has been in continuous debate for years,” Hill says. “I do feel that with current increases in regulator pressure, this has improved over recent years, but given topical high-profile cases of audit quality issues it would seem that there is further space to keep the discussion developing.”
The entities that require audits are becoming more complex for firms to audit, meaning statutory audits must continually be appropriately monitored, he adds.
“This isn’t necessarily just a professional industry issue, as to enhance scepticism will require action on the part of audit committees, management, standard setters and others, too.”
During his 40-year career, Maslin says he has campaigned for the investor community to work in closer proximity to the audit process. He feels the latest government consultations on this have been “too timid”.
There are various models that could improve institutional investor awareness of and input to key audit matters, which could include fee decisions, he says.
As an example to ensure audit quality, Maslin says auditors can either establish a joint venture company with investors who provide feedback on their needs and receive updates on systemic issues from the audit profession.
Alternatively, he says the audit committee chair could have a professional qualification that emphasises their responsibility to ask the same difficult questions that users would.
While this may help, instilling the right culture is still a priority for Maslin.
“I think the level of auditor scepticism and challenge is far greater now than 10 years ago, but we would be foolish to rest on our laurels, there is still much to do,” he notes.
