Birth Right of Auditor – Scepticism

Professional scepticism forms the foundation of every audit. It represents the auditor’s questioning mind and critical evaluation of evidence, ensuring that audit conclusions are based on facts and not assumptions. Often referred to as the birth right of an auditor, scepticism protects the integrity of financial reporting and strengthens public confidence in the auditing profession.

Meaning of Professional Scepticism

Professional scepticism is an attitude that involves a constant questioning approach and alertness to situations that may indicate potential misstatements due to fraud or error.
It is not about being suspicious or distrustful of management but about maintaining a balanced mindset — neither blindly accepting information nor disregarding it without reason.

This attitude helps the auditor stay objective, evaluate evidence critically, and exercise sound professional judgment while forming an opinion on financial statements.

Why It Is Called the “Birth Right of Auditor”

The term “birth right of auditor” signifies that scepticism is an inborn, essential attribute of an auditor’s role. Independence and scepticism together form the very identity of the audit profession.

Auditors are expected to question, verify, and validate — not merely to observe. This mindset distinguishes auditors from accountants and ensures that their conclusions are credible, unbiased, and reliable.
In simple terms, without scepticism, auditing loses its purpose and meaning.

Importance of Professional Scepticism in Auditing

Professional scepticism acts as a shield that protects the audit process from bias, manipulation, and oversight. Its importance can be understood under the following aspects:

1. Detection of Fraud and Errors

A sceptical auditor questions unusual transactions, inconsistent data, or management claims that appear unreasonable, helping detect possible fraud or errors at an early stage.

2. Improvement in Audit Quality

By assessing evidence critically and verifying its reliability, the auditor ensures the audit findings are strong and well-supported, leading to high-quality audit reports.

3. Strengthening Public Confidence

Scepticism ensures transparency and objectivity in the audit process, which enhances the public’s trust in the fairness of financial statements.

4. Compliance with Auditing Standards

Standards such as SA 200 (Overall Objectives of the Independent Auditor) and SA 240 (Auditor’s Responsibilities Relating to Fraud) make professional scepticism a mandatory requirement throughout the audit process.

Application of Professional Scepticism at Various Stages

Scepticism must be applied at all stages of the audit — from planning to conclusion — to ensure that the audit opinion is well-grounded.

1. Planning the Audit

At this stage, the auditor uses scepticism to identify areas where the risk of misstatement is higher. Understanding the nature of business, internal controls, and previous audit findings helps in designing effective audit procedures.

2. Gathering Audit Evidence

During evidence collection, the auditor remains alert to inconsistencies or gaps in documentation. Independent verification, external confirmations, and analytical procedures help validate management claims.

3. Evaluating Management Representations

Scepticism ensures that management statements are supported by appropriate documentation and not accepted without cross-verification.

4. Assessing Fraud Risks

The auditor maintains professional alertness towards circumstances that indicate possible fraud, manipulation, or intentional misstatement in records.

5. Forming the Audit Opinion

Before concluding, the auditor reassesses whether sufficient and appropriate evidence has been obtained to support the audit opinion.

Examples of Lack of Professional Scepticism

When scepticism is not maintained, audit failures can occur. Common examples include:

• Accepting management’s valuation of inventory without independent verification.
• Ignoring mismatches between accounting records and external confirmations.
• Overlooking related-party transactions that lack proper disclosure.
• Relying entirely on prior year’s audit work without considering current changes.

Such instances can lead to undetected frauds or misstatements, undermining the credibility of both the audit report and the auditor.

Challenges in Maintaining Professional Scepticism

Even though scepticism is essential, several challenges may affect its consistent application:

1. Familiarity Threat

A long-term relationship with the client can make the auditor too trusting of management representations.

2. Time and Budget Pressure

Tight schedules or limited resources may discourage deep examination and verification of evidence.

3. Complexity of Transactions

Modern businesses deal with complex financial instruments and estimates, which require a high level of judgement and technical knowledge.

4. Influence or Pressure from Management

Subtle or direct influence from senior management can affect the auditor’s objectivity, especially in client-dependent firms.

Ways to Strengthen Professional Scepticism

Maintaining scepticism requires conscious effort, discipline, and adherence to ethical standards. The following measures can help reinforce it:

1. Continuous Professional Training

Regular learning and updates on auditing standards improve an auditor’s analytical and critical thinking abilities.

2. Peer Review and Supervision

Independent review of audit work by another experienced professional provides an additional safeguard against bias or oversight.

3. Partner and Staff Rotation

Rotating key personnel involved in audits reduces familiarity threats and promotes fresh perspectives.

4. Ethical Awareness and Independence

Strict compliance with the ICAI’s Code of Ethics ensures that decisions are based on professional judgement rather than external pressures.

5. Proper Documentation

Comprehensive documentation of audit evidence, assumptions, and judgements supports transparency and helps demonstrate the application of scepticism during reviews or inspections.

Role of Auditing Standards

Indian auditing standards clearly outline the auditor’s responsibility to apply professional scepticism throughout the audit.

• SA 200 states that the auditor shall plan and perform an audit with professional scepticism, recognising the possibility that material misstatements may exist.
• SA 240 emphasises scepticism in identifying and responding to fraud risk factors.
• SA 500 highlights that evidence obtained from independent sources outside the entity is generally more reliable, reinforcing the sceptical approach.

These standards collectively ensure that scepticism remains the central guiding principle of audit practice.

Conclusion

Professional scepticism is indeed the birth right of an auditor. It safeguards independence, ensures objectivity, and enhances the overall quality of audits.
A sceptical mindset helps auditors go beyond surface-level observations, detect irregularities, and ensure the reliability of financial statements.
Therefore, scepticism must not be treated as an occasional exercise but as an integral, continuous attitude — the very essence of responsible auditing.