FRC sets out good practice for audit scepticism

The Financial Reporting Council (FRC) has published a new report setting out examples of good practice to improve auditor scepticism and challenge.

According to the FRC high-quality auditing is about having the “right mindset and behaviours” as well as having “technical skills and expertise”. It said that a critical attribute of an auditor’s mindset and behaviour is “exercising professional scepticism and challenge” when performing audits.

The paper draws on evidence from FRC’s cross-firm work performed by the FRC’s Audit Market Supervision (‘AMS’) team. As part of its supervisory approach to audit regulation, it set up AMS to take a “cross-firm approach” to areas of importance to audit quality and firm resilience.

FRC considers four key elements of a good environment for scepticism and challenge: the learning environment, culture and operating model of the audit firm, as well as the interactions that the audit firm has with parties in the wider ecosystem.

The regulator said that it is committed to working with audit firms, and other stakeholders, to improve audit quality and, as a result, ensure better outcomes for stakeholders who rely on the accuracy and integrity of a company’s financial performance and prospects.

The report said: “It is vital that a good audit recognises the need for an audit team to not only have the necessary skills and experience but that it also approaches the engagement with the right behaviours and mindset.