The Financial Reporting Council in their recent report entitled, “Professional Judgement Guidance” has called upon accountants to improve their approaches to auditing.
The UK based industry watchdog has instructed auditors to demonstrate a greater level of scepticism when undertaking their functions, warning that poor professional judgement had become one of the most significant issues surrounding the standards of auditing practice within the UK.
This call to enhanced levels of critical analysis follows a number of high-profile corporate scandals in which auditors were either complicit in wrongdoing, or failed to detect discrepancies, including Carillion, BHS, Mitie, amongst others, and the decision by the UK Government to significantly dilute Sarbanes-Oxley-style proposals and boardroom reforms which would have required directors to sign off on companies’ internal controls and directors personally liable for financial reporting.
As part of the new guidance, the FRC has flagged that professional scepticism was “a key part of an appropriate auditor mindset, supporting the quality of judgments made on the engagement and, through these judgments, the overall effectiveness”.
Mark Babington, the FRC’s executive director of regulatory standards, highlighted professional judgment was a “fundamental requirement for high quality audit”, adding, “Unfortunately the FRC’s supervision and enforcement work regularly finds professional judgment has not been exercised effectively and consistently, undermining audit quality and trust in audited accounts.”
Link to the Professional Judgement Guidance June 2022