AU-C Section 200.17: Professional Skepticism

AU-C Section 200.17 says:

"The auditor should plan and perform an audit with professional skepticism, recognizing that circumstances may exist that cause the financial statements to be materially misstated." 

Professional skepticism is defined as an attitude that includes a questioning mind, being alert to conditions that may indicate possible misstatement due to fraud or error, and a critical assessment of audit evidence.  

Throughout the audit, the auditor should be alert to the following:

• Audit evidence that contradicts other audit evidence obtained.
• Information that brings into question the reliability of documents and responses to inquiries to be used as audit evidence.
• Conditions that may indicate possible fraud.
• Circumstances that suggest the need for audit procedures in addition to those required by GAAS. 

In doing so, the auditor hopes to prevent:

• overlooking unusual circumstances.
• over-generalizing when drawing conclusions from audit observations.
• using inappropriate assumptions in determining the nature, timing, and extent of the audit procedures and evaluating the results thereof. 

In regard to the critical assessment of audit evidence, the auditor should:

• question contradictory audit evidence and the reliability of documents and responses to inquiries and other information obtained from management and those charged with governance.
•  consider the sufficiency and appropriateness of audit evidence obtained in light of the circumstances.

The auditor may accept records and documents as genuine unless the auditor has reason to believe the contrary.  In such a case, the auditor should investigate further and determine what modifications or additions to audit procedures are necessary to resolve the matter. 

The auditor neither assumes that management is dishonest nor assumes unquestioned honesty.  The belief that management is honest and has integrity does not relieve the auditor of his duty to obtain sufficient and appropriate evidence when obtaining reasonable assurance. 

https://www.aicpa.org/content/dam/aicpa/research/standards/auditattest/downloadabledocuments/au-c-00200.pdf