Monitoring and enhancing professional scepticism in Maltese external auditing

Abstract

PURPOSE: Professional Scepticism (PS) is a mindset which auditors adopt to ensure audit quality throughout audit engagements. The purpose of this research is to investigate recruitment, training and performance appraisal policies applied by audit firms in the context of PS and the effect of recent revisions in ISA315 and ISA540 on PS. Finally, it investigates PS deficiencies identified in statutory auditing by engagement quality reviews (EQRs) performed internally by audit firms and externally by the Quality Assurance Unit (QAU). DESIGN: A qualitative approach was applied, using semi-structured interviews to allow an in-depth discussion. Interviewees included a representative of the QAU and nine audit firm partners. FINDINGS: The findings suggest that PS is mainly considered throughout training and performance appraisal. At recruitment stage, the concept is considered indirectly through the individual’s characteristics of persistence, confidence and motivated attitudes. The interviewees expressed that the recent revisions in ISAs have been helpful for PS by clarifying the requirements which auditors must fulfil during engagements. The findings also suggest that deficiencies in PS, identified by audit firms and by the QAU, predominantly result in insufficient documentation. It appears that PS is indirectly reviewed by the QAU by means of review of different audit areas. CONCLUSIONS: This study concludes that PS is an integral audit skill which is monitored within different audit areas and enhanced with experience gained throughout one’s audit career. Whilst ISA revisions are perceived to aid in facilitating the practice of PS, professional judgement in exercising PS is still required and very much dependent on the individual auditor. Additionally, both internal and external EQRs have an important role in monitoring PS and maintaining audit quality. IMPLICATIONS: The study identifies what importance PS is given in select audit firm policies and procedures relating to employee selection and performance. It sheds light on audit firms’ perceptions of the effect of the revised standards on PS. Moreover, this research offers insight into PS related deficiencies across Maltese statutory auditing as identified by EQRs, and the perceptions of both audit firms and the QAU in this regard.