In his September 13 presentation, “Audit Quality and Professional Skepticism: How are they Related?,” Bruce Piller, managing partner of the Chicago office, and partner-in-charge of the audit practice for Chicago and Milwaukee, KPMG LLP, said a healthy degree of professional skepticism goes a long way in enhancing the quality of an audit. In fact, he said, it’s essential.
“Professional skepticism can be thought of as an attitude exercised throughout the audit process that includes a questioning mind and a critical assessment of audit,” said Piller. “It reduces the risk of overlooking suspicious circumstances, over generalizing when drawing conclusions, and using faulty assumptions. Otherwise, we can walk away with the wrong information and reach the wrong conclusion as auditors.”
Piller shared examples on videotape of mock interactions between clients and auditors, and challenged the audience to observe the players to determine how well-prepared the auditing team was, and whether professional skepticism was appropriately exercised.
In the ensuing discussion, students saw that some of the client’s assumptions seemed to be questionable, and rather than taking things at face value, the auditors needed to ask appropriate follow-up questions.
“What happens if your client replies ‘We used the same assumptions that you reviewed last year’ or ‘These are only projections’ or, even after a bit of probing, ‘The board approved it, so I consider your query a non-issue’?”
KPMG provides training in these types of skills – skills that are important and even crucial to fulfilling our responsibility as auditors in capital markets, said Piller.
“We teach people how to conduct appropriate interviews, how to ask the right kind of questions, and how to understand the feedback from a client,” he added.
Piller outlined how executing critical assessments are more important than ever, namely, because fraud and misconduct have become global issues.
The bottom line that our auditors can follow when it comes to executing professional skepticism is ‘Trust, but verify.’”