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The Fine Line Between Professional
Skepticism and Distrust in Auditing
assuming that management is dishonest, but rather
recognizing the possibility that misstatement,
whether intentional or unintentional may exist.
Let us know about the key elements of professional
skepticism:
• Critical Thinking: Evaluating financial data
without bias.
• Diligent Verification: Affirming evidence
from multiple sources.
CA Ratna Rachita Mohanty • Inquisitiveness: Asking the right questions
and seeking clarifications.
Chairperson, Cuttack Branch of ICAI (2024-25) • Awareness of Biases: Being mindful of
caratnarachita@gmail.com
cognitive biases that may impact judgement.
While professional skepticism has long been What is distrust – in context of internal
recognized as an important element in auditing, auditors?
the exercise of an appropriate level of professional
skepticism continues to challenge the audit
profession. Although improvements have been Distrust refers to skepticism or lack of confidence
acknowledged, the several global professional in an organization’s internal controls, financial
accounting bodies and regulators continue to reporting or management integrity. This occurs
express concerns with regard to the application of when internal auditors suspect potential fraud,
insufficient levels of professional skepticism in the inefficiencies or non-compliance with policies and
conduct of an audit. regulations.
Maintaining a balance between professional When does Skepticism Turn into Distrust?
skepticism and distrust is crucial. Auditors are
expected to exercise professional skepticism While skepticism is essential, excessive skepticism
through a questioning mindset that ensures the can lead to distrust, which can be detrimental to
reliability of financial information, without creating both the auditor & client relationship and the audit
an atmosphere of undue suspicion or hostility. process. Distrust implies to an inherent suspicion
Keeping in mind the fine line of difference, is that the management is acting dishonestly. This
essential for nurturing trust, upholding objectivity mindset can lead to:
and ensuring high quality audits.
• Unnecessary conflicts between auditors and
What is Professional Skepticism? management.
• Delays and inefficiencies in the audit process
Professional skepticism is a fundamental attribute due to excessive verification.
of an auditor which includes a questioning • Reduced co-operation from management,
mind, being alert to conditions that may indicate affecting access to crucial information.
misstatement due to error or fraud, and a critical • Compromised professional judgement where
assessment of audit evidence. It does not mean skepticism turns into bias against the auditee.
35 INTERNAL AUDIT TODAY
