Audit Quality: Professional Skepticism

Kristian Ødegaard Knudsen & Stefan Bay Lauridsen

Student thesis: Master thesis


This thesis examines, if the introduction of the concept of professional skepticism to the Danish Audit Act1 can raise the quality of auditing. The auditing industry is undergoing a transformation process, where analytical data driven tools increasingly replace more of the auditor’s previous responsibilities, and at the same time, companies continue to grow in complexity. Auditors increasingly have to deal with data derived from managerial estimates in their reviews. The concept of professional skepticism and the regulators desire to implement professional skepticism into the Audit Act, is a direct consequence of the public’s interest in ensuring trust in the work that goes into the auditor’s statement. The purpose of this paper is therefore to examine the development and attainment of auditing quality, with a particular focus on areas where professional skepticism has relevance. Auditing quality is explained through the theoretical aspects of the development of auditing quality, the auditing process and the auditor’s responsibility for performing quality audits of financial statements from a stakeholder view/perspective. In addition, we explain the concept of good auditing practice, as auditors can be sanctioned for violations in rulings. Danish Business Authority’s perspective on, and focus areas in regards to auditing quality will also be described. This thesis describes different threats and biases that auditors’ are exposed to during an auditing process, with a particular focus on conditions that influence auditors’ objectivity and hereby the quality of the audit. This thesis limits its focus to rulings, where auditors are found guilty of breaching good auditing practice, and conditions that are included in the RL § 16, stk. 2. Firstly 131 rulings where auditors are sanctioned are analyzed and then follows an analysis of 30 rulings, where this thesis examines the easing of sanctions of auditors after the introduction of the revised Audit Act on the 17th of June 2016. Lastly, 5 rulings are more thoroughly analyzed in terms of the conditions and discrepancies that created the foundation for the auditors’ sanctions. For the analysis of the rulings, a theory described in the chapter relating to auditing quality is used, as well as references to other regulations that are found relevant and necessary. The main question of the thesis is solely answered based on a theoretical analysis of the selected rulings. The conclusion of the analysis found that there are clear indications that professional skepticism can assist in raising the auditing quality in the auditor’s work.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2018
Number of pages132