Conceptual basis of an auditor's professional judgment – professional skepticism

Abstract

The auditor's professional judgment and professional skepticism are the fundamental principles of auditing. The knowledge of their content is in the center of attention of scientists and practitioners. Recently, some trends have emerged regarding the study of their regularities with the purpose for more effective usage in practical activity. Guided by this approach, it was established that the professional skepticism and professional judgment of an auditor constitute the process of knowing the truth on the reliability, completeness and compliance with the legislation of financial reporting. The auditor's professional judgment includes an opinion in which based on proposed assumption regarding distortion of financial statements the presence of the latter is asserted or denied. Thus, the auditor's judgment is completely subordinated to professional skepticism. Such a conclusion is not accidental, but corresponds to the natural development of auditing. It is typical that at the stage of the accounting audit the auditor's judgment was aimed at confirming the accounting. Establishing fraud was situational in nature: skepticism took a secondary place. With the advent of the test audit, the auditor's professional judgment aimed to research the internal control. Showing skepticism and distrust to an economic entity had a negative assessment. The leading place in the relationship between the auditor and the economic entity was occupied by cooperation and providing useful advice. The further development of the economy and the significant growth of fraud significantly changed the social function of the audit, and thus the direction of an auditor's professional judgment. The auditor's detection of fraud became his professional duty, to which the auditor's professional judgment was fully subordinated. Based on interconnection and interdependence of professional skepticism and the auditor's professional judgment, a risk-oriented approach was formed to identify distortions of financial statements due to fraud or error.