ACCA AAA ^INT Syllabus G. Current Issues - Current Developments In Auditing Standards - Part 4 - Notes ^{4 / 4}

Professional scepticism is ‘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 audit evidence.’

In recent years there's a view to strengthen the concept and requiring all professional accountants to exercise it, rather than solely audit and assurance practitioners.

Hence this Exposure Draft

It proposes the following:

1. Role and Responsibility

   Highlighting the wide-ranging ROLE in society of professional accountants and RESPONSIBILITY to act in the public interest.

2. Objectivity and Professional Behaviour

   New definitions

3. Integrity

   New application material on integrity - including a determination to act appropriately.

4. An Inquiring Mind

   Requiring professional accountants to have an inquiring mind when applying the conceptual framework and exercising professional judgement.

5. Application of the conceptual framework: bias

   Being aware of bias and having a positive, internal organisational culture.

The proposed revisions explain that compliance with the Code enables accountants to meet their responsibilities to act in the public interest.

Although the IESBA concedes that compliance with the Code, in itself, is not always enough

Professional accountants are involved in a wide range of roles

The new definition of "objectivity" expressed in positive rather than negative terms.

It emphasises the actual exercise of judgements, without these being compromised by factors such as bias, conflicts of interest or any form of undue influence by, or undue reliance on other parties.

It also highlights the risks of technology impairing objectivity. 'Automation bias’ is mentioned

The definition of "professional behaviour" includes a responsibility to act in the public interest, rather than just being focussed internally on the profession itself.

New application material shows acting appropriately in difficult situations

Eg:
1. Standing your ground under pressure 
2. Challenging others (when appropriate) even if adverse personal or organisational consequences.

The term 'Moral" wasn't used because it may be construed inconsistently in different cultures

The term ‘Resolve’ wasn't used because of potential translation issues

The revisions to the Code convey that accountants must actually having the courage to speak up in order to comply with the code

Professional accountants should be able to:

1. Obtain and understand relevant info relevant to make judgements

2. Challenge others' views

3. Be sensitive to the integrity of information (its source, presentation)

4. Withhold judgement until considered all known and relevant information

'Professional scepticism' should be used only in an audit or assurance context.

The Exposure Draft states all professional accountants ‘have an inquiring mind’ when applying the conceptual framework.

Note the word - ‘mind’ - meaning 'a way of thinking'
Not - ‘mindset’ - meaning 'a set of attitudes'

‘Having an inquiring mind’ is:
i. being open and alert for situations needing further investigation; and
ii. considering whether to critically evaluate the information obtained where the need for investigation depends on the nature of the professional activity

Overall, the concepts of professional scepticism and having an inquiring mind appear to be well aligned and complementary as the exercise of scepticism is a vital quality for all professional accountants.

The Exposure Draft proposes to emphasise awareness of any professional accountant’s individual bias

Especially when using professional judgment

It includes an illustrative list of common forms of bias in the Code:

Anchoring bias: a tendency to use an initial piece of information as an anchor against which subsequent information is adequately assessed

Automation bias: a tendency to favour output generated from automated systems, even when human reasoning or contradictory information raises questions against it

Availability bias: a tendency to place more weight on events or experiences that immediately come to mind or are readily available than on those that are not

Confirmation bias: a tendency to place more weight on information that corroborates an existing belief than information that contradicts it

Groupthink: a tendency to think or make decisions as a group that discourages creativity or individual responsibility

Overconfidence bias: a tendency to overestimate one’s own ability to make accurate assessments of risk and other judgements or decisions

Representation bias: a tendency to base an understanding on a pattern of experiences, events or beliefs that is considered to be representative

Selective perception: a tendency for a person’s expectations to influence how the person views a particular matter

By raising awareness to potential bias, risk of poor professional judgement is reduced

The Exposure Draft suggests that consulting others / experts can enhance the evaluation process.

The IESBA also believes that internal culture has a significant impact on compliance with the Code and acting ethically.

A positive internal organisational culture is most effective when:

(a) Leaders / Managers roles hold themselves and others accountable for ethical values

(b) Appropriate training, management processes, and performance evaluation criteria promoting an ethical culture

(c) Ethical values are adhered to in dealings with third parties.

These proposed changes are complimentary to the work being carried out by the IAASB in relation to Proposed International Standard on Quality Management 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements, which sets out requirements and application material in the relation to the firm’s responsibility to design and implement an effective system of quality management.

The Exposure Draft serves as an important reminder to professional accountants of the significance of their role in society and the importance of compliance with the Code towards fulfilling their responsibility to act in the public interest.

The proposals also highlight the need to strengthen the fundamental principles and enhance the application of the conceptual framework through the introduction of new concepts such as the importance of having an inquiring mind.