State Scepticism

Whilst it is recognised above that ideal expression of professionally sceptical traits would equate to ideal neutrality and freedom from bias, it is also acknowledged in the literature that scepticism may be situationally responsive (Brown-Liburd et al, 2013). Changes in scepticism level might arise internally, such as from the process of (re)assessing risk; or from external prompts that more or less risk may be encountered. That is, auditors may induce a state that will complement the trait position, correcting for any underlying bias, as appropriate to the situation at hand.

In suggesting that a state of less than 100% scepticism is acceptable, it is noted that extreme scepticism in situations of low risk would result in excessive effort and operational inefficiency. This suggests a range of professionally sceptical behaviours may be acceptable for the purpose of appropriately conducting an audit.

Until evidence is available to suggest otherwise, it is assumed that relative changes across the continuum, through neutral and presumptive doubt, from extreme to extreme, are incrementally consistent. Therefore, in this model, the outer parts of Glover & Prowitt’s ‘professional’ range are contracted somewhat to accommodate incremental changes in scepticism which reflect the transition from professionally sceptical toward states which are more influenced by subjectivity. This mid-range of scepticism, between professional scepticism and biases, is referred to as lay scepticism for the purposes of this research. Some distinction between layperson and professional scepticism is warranted because Trotman (2006) argues that audit professionals attract even higher expectations of judgment accuracy than other

professionals, despite the requirement that they make such judgements about often highly ambiguous accounting practices and deceptively concealed fraud.

Without asserting limits to which such a range of states might extend, the concept of professional scepticism as a range of states, rather than an absolute position, is illustrated in Figure 3.7.

Figure 3.6 A Professional Scepticism Range

The professional range may or may not overlap with a range of scepticism exhibited by laypersons. According to the literature reviewed in Chapter 2, some prior research has found no significant within-group differences between scepticism levels of auditors and students, but differences between groups. Other studies identify relative differences between auditors with, for example, varying experience. It is possible that an appropriately sceptical state may be an individual’s default mindframe, or a mindframe augmented to include more scepticism. Examples of augmenting factors include prompts arising from an individual’s accumulating learning and experiences (skills), or from situational influences such as supervisor instruction; providing potential to improve upon a trait position to achieve a heightened state of scepticism when required. The relationship between these factors, and suggestion of a possible reinforcing feedback loop, is illustrated by

Anderson (2009) who developed the schema to model these issues in a broader judgment context.

Figure 3.7 The Role of Scepticism Augmentation

SOURCE: Anderson (2009, p.384)

Augmentation may arise externally, from prompts that enhance manifestation of sceptical attitudes or actions (Khan & Harding, 2013; Grenier, 2014). This concept is of particular interest because objectivity is defined as “a state or quality... intentness on objects external to the mind; external reality” (Houghton Mifflin, 2004; Random House, 2009). This is consistent with the earlier definition of scepticism generally, and also with the principle that audit judgments must be made in the public interest. However, a potential problem with external prompts is that initiation of appropriate scepticism, matched to (re)assessments of risk throughout the audit process, would be dependent upon the presence of reliably consistent external prompts, also matched to those (re)assessed risks. Such an expectation is likely to present an unrealistic supervision burden. Further, reliance upon external prompts may be unreliable if such use is subject to the limitations of theoretical (external) knowledge, identified above, wherein biases dominate over integrated (internalised) knowledge. Such a phenomenon may explain observations that sceptical judgments

do not always result in sceptical actions (Khan & Harding, 2013; Harding & Trotman, 2015).

The Auditing Standards require that all members of audit teams (AUASB, 2013b) maintain professional scepticism throughout audits (AUASB, 2013b), placing the onus on individuals to challenge their own judgment processes, as needed. This necessitates the use of internal prompts by those individuals whose inherent trait position is other than professionally sceptical, to achieve and maintain a state of professional scepticism.

The process of self-initiating scepticism prompts suggests that skills are necessary to recognise times of need for increased professional scepticism, integrate knowledge of suitable augmentation prompts, and to assess the efficacy of implementing those prompts. This would facilitate maintaining of a questioning mind during (re)assessment of risks and critical assessment of evidence. It is supposed that internalised prompts may give rise to more authentic sceptical behaviours, possibly bridging the gap between sceptical judgments and sceptical actions. It is further supposed that routine use of internalised prompts may become integrated to such an extent that trait shifts occur, over time, toward a more professionally sceptical inherent position. That is, an individual who possesses a high level of such skill may enhance a less-than-professionally sceptical inherent position to achieve a professionally sceptical state, appropriate to the circumstances.