Page 1 Professional Skepticism Prof. Annette Köhler, IAASB Member and Working Group Chair IAASB CAG Meeting September 15, 2015

Page 2 Background and Introduction ISAs define professional skepticism as an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of evidence –Interrelated with fundamental concepts of independence of mind, objectivity and professional judgment, and contributes to audit quality –Also addressed in the IESBA Code and IAESB’s education standards February 2012 Staff Publication addresses how professional skepticism applies to audits of financial statements

Page 3 Calls for enhanced auditor professional skepticism from many stakeholders, including –Regulator and audit oversight authorities –Outreach and other national initiatives –Academic research Working Group established comprising of representatives from IAASB, IESBA and IAESB –Collaborated approach that includes other standard setting boards Why Should the IAASB Consider a Professional Skepticism Project Now?

Page 4 To determine the conceptual issues related to professional skepticism, broadly across all the international standards (audit, ethics and education), and a)Identify where further alignment is needed, or where gaps exists; and b)Make observations or recommendations for further actions, as needed. PSWG Objective

Page 5 Based on extant international standards (audit, ethics and education) : a)What is professional skepticism (PS)? Are the requirements and expectations clear? (e.g., Are the links between PS, and the concepts of assurance, evidence, engagement risk, due care, integrity, independence of mind, objectivity, and competence sufficiently clear and well understood?) b)What are the skills and competencies required for applying PS? c)What are the impediments affecting the consistent application of professional skepticism? Based on the responses to a–c, what observations can be made about each suite of standards? Key Questions Relevant for Determining a Way Forward

Page 6 Panelists/ IAASB shared perspectives and considered underlying issues and brainstorm potential solutions Concept of professional skepticism is complex and difficult to address because of behavioral and psychological aspects –Influenced by personal traits (i.e., attitudes and values), state-specific aspects (i.e., knowledge and experience of individual auditors), as well as culture –Solutions beyond standard setting needed –Need for a further understanding of what triggers inspection findings CAG to be informed by one of the June 2015 panelists June 2015 Panel Discussion

Page 7 Invitation to Comment (ITC) planned for December 2015 approval –ITC intended to address matters relevant to the IAASB’s work on the topics of quality control, group audits, financial institutions and professional skepticism –Summary of the June 2015 panel discussion to be included in the ITC Research synthesis to be considered in December 2015 –Research synthesis aimed at summarizing ongoing and released work on the topic of professional skepticism since 2013 Next Steps