Which of the following best demonstrates the concept of professional skepticism?
A) Relying more extensively on external evidence rather than internal evidence.
B) Focusing on items that have a more significant quantitative effect on the entity's financial statements.
C) Critically assessing verbal evidence received from the entity's management.
D) Evaluating potential financial interests held by auditors in the client.

Question

Quizplus · Accepted Answer

Professional skepticism involves being critical of the evidence retrieved during an audit, and assessing it objectively. Choice C demonstrates this by evaluating the verbal evidence received from the entity's management in a critical manner. This is important as management may have a bias towards portraying a positive image of the company, and auditors need to be skeptical of this. Relying more extensively on external evidence rather than internal evidence (Choice A) is not a demonstration of professional skepticism per se, as both types of evidence should be evaluated with equal skepticism. Similarly, focusing only on items that have a more significant quantitative effect on the financial statements (Choice B) is not a demonstration of professional skepticism, as errors or misstatements in smaller balances can also impact the financial statements. Evaluating potential financial interests held by auditors in the client (Choice D) is important for maintaining independence and objectivity but is not directly related to professional skepticism.

Which of the Following Best Demonstrates the Concept of Professional