Due professional care is a combination of professional judgment and skepticism. The AICPA defines independence of mind as a state of mind that permits a member to perform services without being affected by influences that compromise professional judgment. To reach this state of mind – due professional care – a combination of professional judgment and skepticism, must be exercised. This should apply to all accountants whether doing an audit, tax return, or working in industry.
Skepticism is a safeguard to help ensure independence is at an acceptable level in auditing and following the rules is at an acceptable level in business. All accountants need to develop a skeptical attitude when dealing with clients or fellow workers or bosses. “To doubt the truth of something” starts with knowledge. When an accountant is looking at information he/she should ask if what they are looking at makes sense. Are there any anomalies in what we see? We are trained professionals and we should be able to ascertain if more in depth questioning is needed.
A case in point occurred when the CFO of a company did not have a skeptical attitude in dealing with his boss. The CFO was asked to make certain journal entries by the CEO. He said he trusted the CEO and never realized that the entries were management overrides. The CFO went to jail because he did not recognize what was going on and did not think to question the CEO. This is an example of the familiarity threat that should have brought into question whether or not compliance with the rules was compromised. A skeptical attitude is a safeguard against this threat.
The second aspect to being skeptical is observation. Just because someone tells the accountant something or she finds it in the policy and procedures manual does not mean that is what is being done. The accountant must always follow up inquiry with observation. The third aspect of doubting the truth of something is deductive reasoning or the ability to take all this information and draw a conclusion or make a decision. This process involves the philosophical definition of skepticism – the theory that certain knowledge is impossible. In auditing we draw our conclusion based on sampling and when interviewing a tax client we are never sure that we have all the information. However, using the steps above we can ask ourselves if it makes sense and thereby reduce the risk of drawing the wrong conclusion. As such, being skeptical is not bad. It is, in fact, necessary.