(upbeat music)
-: There are three elements
to the definition of professional scepticism.
The first is the requirement for the practitioner
to make a critical assessment of the validity
of the evidence obtained,
and to do so with a question in mind.
An attitude of professional scepticism
also requires the practitioner to be alert
to evidence that contradicts
or brings into question the reliability
of documents or representations made
by the responsible party.
There are many dimensions
to the element of critical assessment.
The most important of these
are arguably the search for knowledge,
and the suspension of judgement .
The search of knowledge refers
to the desire to investigate beyond the obvious,
as well as the desire to corroborate.
This takes knowledge and understanding further
by requiring the practitioner
to draw inferences and apply
evidence based thinking.
Suspension of judgement requires the practitioner
to withhold judgement until appropriate
evidence is obtained.
For example let's consider the judge
in a murder case that has received a lot
of media coverage.
The media has portrayed the defendant
in very poor light due to his
previous drug related convictions.
How will the judge exercise critical assessment?
In exercising critical assessment,
the judge would not automatically assume guilt.
This does not mean that the judge
should ignore other information.
In other words the judge would
draw inferences to previous convictions
when judging the defendant's character
and regard for rules and regulations.
This would also be a consideration
in the sentence that the judge would hand down.
However, in arriving at the verdict,
the judge would require evidence and proof
to substantiate or corroborate
the arguments put forward
by the defence and prosecution.
The judge would then arrive at a verdict
by weighing up the facts and evidence
at his or her disposal.
The second element of professional scepticism
is the 'questioning mind'.
Having a 'questioning mind'
refers to the disposition to inquiry.
In other words, asking questions.
It also includes a sense of doubt.
Having a 'questioning mind' is also
characterised by 'autonomy' and self-esteem.
Autonomy refers to the moral independence
and conviction to decide for oneself
rather than accepting the claims of others,
while self-esteem refers to the
self confidence to resist and to challenge
assumptions or conclusions.
For example, assume you are the auditor of Blue Ltd.
The management of Blue Ltd. decided to revalue
their assets in the current year.
How would you demonstrate a questioning mind
in relation to the revaluation?
As an auditor with a questioning mind,
you would make inquiries regarding
the reasons for the revaluation
and the method used to arrive
at the revaluation amount.
You would exercise autonomy by
conducting your own revaluation calculations
or obtaining the use of your own expert.
You would not simply accept the claims by management,
or management's expert.
You would exercise self-esteem
by inspecting the calculations and assumptions
of management's calculations
and challenge the reasonableness
of the assumptions in respect
to other entities operating in similar industries.
Alertness requires the practitioner
to be aware of contradictions and anomalies.
In order to be alert the practitioner
should have an interpersonal understanding.
In other words, the practitioner
needs to recognise people's motivations
and perceptions can lead them to
provide biassed or misleading information.
For example, assume you are the auditor of Orange Ltd.
You have been informed that management's bonuses
are dependent on the achievement
of a preset net profit target.
In the current year, revenue increased
more than 10% in comparison to prior year,
while tax expense decreased by 13%.
Management are pleased with Orange Ltd's performance
as they have satisfied the bonus requirement.
How will you react to this information
in respect of alertness?
Firstly you'd be alert to the possibility
that the net profit may be misstated
in order to meet the target.
You would also be aware of the
increase in revenue with the
decrease in tax expense.
This appears to be a contradiction
to the normal relationship
between revenue and tax expense.
In other words you would expect
that an increase in revenue
would also result in an increase in tax expense.
You would further recognise that
management may provide misleading information
to cover up possible misstatements.
To recap, professional scepticism requires
practitioners to make critical assessments
with a questioning mind
and to be alert for any anomalies
and contradictory evidence.