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Tuesday, 20 December 2011

The Nature of Scepticism

Readers of Pragmatist will know that I've expressed my bemusement before that auditors have to be taught how to be sceptical. That was back in March. In November, the European Commission confirmed that the Financial Reporting Council wasn't joking:
"Article 15

Professional scepticism

When carrying out the statutory audit of a public-interest entity, the statutory auditor or audit firm shall maintain professional scepticism throughout the audit, recognizing the possibility that a material misstatement due to facts or behaviour indicating irregularities, including fraud or error could exist, notwithstanding the auditor's or firm's past experience of the honesty andintegrity of the audited entity's management and of the persons charged with its governance.

The statutory auditor or the audit firm shall maintain professional scepticism in particular when reviewing management estimates relating to fair values and the impairment of goodwill and other intangible and future cash flow relevant to the consideration of the going concern.

For the purposes of this Article, 'professional scepticism' means an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud and a critical assessment of audit evidence."
Proposal for a regulation on specific requirements regarding statutory audit of public-interest entities.
Next: a European Regulation governing the exercise of scepticism in the course of police interviews...  

Hat-tip to Mark from last night's London New Finance Meet-up. Image from The Philosopher's Magazine.

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