Professional Skepticism: The Engine of Audit Quality

Confidence in financial reporting does not arise by chance. It is built through disciplined assurance processes, ethical judgment, and, critically, professional skepticism.

Professional skepticism in auditing is the questioning attitude and critical mindset that auditors are required to maintain throughout the entire audit process. It involves staying alert to conditions that may indicate material misstatement, whether due to fraud or error, and critically evaluating audit evidence, recognizing that such evidence is persuasive rather than conclusive[1].

Recognizing this, the International Auditing and Assurance Standards Board (IAASB) has taken a decisive step to reinforce skepticism at the heart of audit quality.

On 21 July 2025, the IAASB Professional Skepticism Consultation Groupe (PSCG) released a new non-authoritative publication, How the IAASB’s Revised Going Concern and Fraud Standards Reinforce Professional Skepticism.

The publication explains how the revisions to ISA 570 (Revised 2024) and ISA 240 (Revised), effective, strengthen the consistent application of professional skepticism throughout the audit, particularly in high-judgment and high-risk areas such as going concern and fraud.

Effective for audits of financial statements for periods beginning on or after 15 December 2026, these revisions signal an important evolution: professional skepticism is no longer treated as an implicit expectation of individual auditors alone, it is being reinforced through standards design, audit execution requirements, and firm-level quality management systems.

Professional Skepticism: From Attribute to Audit Imperative

Historically, professional skepticism has often been described as a mindset, a questioning attitude exercised by the auditor. While this remains true, experience has shown that skepticism failures rarely stem from ignorance of standards. Instead, they arise from systemic pressures: time constraints, familiarity threats, over-reliance on management representations, or insufficient challenge embedded in audit processes.

At its core, professional skepticism is not a discretionary technique applied only in response to identified risks. It is a foundational requirement of auditing, firmly established in ISA 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with ISAs. Professional skepticism is explicitly required by ISA 200 (paragraph 15), with further explanation provided in paragraphs A22–A24. Together, these provisions position professional skepticism as an attitude that must be maintained throughout the entire audit, regardless of prior experience with the entity or perceptions of management integrity. Auditors are required to remain alert to conditions that may indicate material misstatement due to fraud or error and to critically assess audit evidence, recognizing that such evidence is persuasive rather than conclusive.

The IAASB’s revised standards directly address this reality. Through clearer requirements and enhanced application material, ISA 570 and ISA 240 now place greater emphasis on:

• Maintaining a questioning mindset throughout the engagement
• Actively seeking and evaluating contradictory evidence
• Appropriately challenging management assumptions, particularly where judgment and estimation uncertainty are significant

These enhancements acknowledge that skepticism must be operationalized, not merely expected.

Why Going Concern and Fraud Demand Heightened Skepticism

Going concern and fraud have long been recognized as areas where professional skepticism is most vulnerable and most critical.

In the context of going concern, auditors are required to evaluate forward-looking information, stress assumptions, and assess management’s plans under uncertainty. The revised ISA 570 strengthens expectations around:

• The rigor applied to management forecasts;
• The evaluation of contradictory indicators;
• The transparency and sufficiency of related disclosures.

Similarly, fraud risk, addressed through ISA 240, demands sustained alertness to bias, override of controls, and intentional misstatement. The revised standard reinforces skepticism by emphasizing deeper inquiry, stronger challenge, and clearer linkage between identified fraud risks and audit responses.

Together, these revisions reflect a clear message: professional skepticism is indispensable where judgment, uncertainty, and incentives intersect.

Professional Skepticism and ISQM: Designing for Quality

While revised ISAs strengthen engagement-level requirements, they cannot operate in isolation. This is where the International Standards on Quality Management (ISQM 1 (Quality management for firms that perform audits or reviews of financial statements, or other assurance or related services) and ISQM 2 (Engagement quality review)) play a key role.

ISQM 1 reframes audit quality as a systemic outcome, requiring firms to design and operate quality management systems that support consistent, high-quality engagements. Within this framework, professional skepticism becomes a quality objective, not an incidental behavior.

Key ISQM components that directly influence skepticism include:

• Governance and leadership: setting the tone that challenge is expected, supported, and protected
• Engagement performance: policies on supervision, review, consultation, and escalation that enforce critical evaluation
• Resources: ensuring sufficient time, expertise, and support to exercise judgment without undue pressure
• Monitoring and remediation: identifying patterns where skepticism may be compromised and addressing root causes

In this sense, ISQM 1 enables firms to move from relying on individual skepticism to designing systems that require and sustain it.

From Compliance to Confidence

The IAASB’s July 2025 publication reinforces an essential truth: audit quality and professional skepticism are inseparable. A technically compliant audit that lacks challenge does not deliver the confidence stakeholders expect. Conversely, a well-designed audit, supported by solid quality management and reinforced by clear standards, transforms financial information into trusted information.

For audit firms, the message is clear. Preparing for the 2026 effective date is not simply about updating methodologies or training materials. It requires a broader assessment of whether firm culture, engagement practices, and quality management systems genuinely support professional skepticism in practice.

Looking Ahead

As the revised ISA 570 and ISA 240 take effect as of mid-December 2026, professional skepticism will increasingly be assessed not only at the engagement level, but across the firm and its quality management system. Audit quality will be judged by how effectively skepticism is supported, demonstrated, documented, and sustained, particularly in high-risk and high-judgment areas.

These revisions reinforce the need for firms to embed professional skepticism within their System of Quality Management (ISQM 1) to ensure consistent application across engagements. Professional skepticism is no longer optional; it is designed to enhance the future of audit.

International Auditing and Assurance Standards Board (IAASB), ISA 200 – Overall Objectives of the Independent Auditor

IAASB, ISA 240 (Revised) – Auditor’s Responsibilities Relating to Fraud

IAASB, ISA 570 (Revised 2024) – Going Concern

IAASB, ISQM 1 and ISQM 2 – International Standards on Quality Management

IAASB – How the IAASB’s Revised Going Concern and Fraud Standards Reinforce Professional Skepticism (21 July 2025)

[1] IAASB. ISA 200, para. 13(l), A20–A24.