In recent times there has been increased scrutiny of the audit profession and the role of the auditors especially in relation to major corporate scandals and failure of companies. Pressure groups and stakeholders have lost trust in the audit profession as a result of this increased criticism. There has been an increased focus on the issue of professional scepticism exercised by auditors during the audit process. Required: Critically evaluate the meaning of professional scepticism and pressure to exercise increased levels of professional scepticism throughout the audit process. You should use examples to illustrate your answer.

Indicate whether the information indicates an increased risk for fraud. If the information indicates an increased risk of fraud, indicate which fraud condition (incentives/pressures, opportunities, or attitudes/rationalization) is indicated. During audit planning, an auditor obtained the following information: Management has a strong interest in employing inappropriate means to minimize reported earnings for tax-motivated reasons. The company’s board of directors includes a majority of directors who are independent of management. Assets and revenues are based on significant estimates that involve subjective judgments and uncertainties that are hard to corroborate. The company is marginally able to meet exchange listing and debt covenant requirements. New accounting pronouncements have resulted in explanatory paragraphs for consistency for the company and other firms in the industry.

Explain how the circumstances under each of the following might reflect failed leadership by auditors and the audit firm: • Under-reporting of time on an engagement• Premature sign-off on audit procedures• Accepting weak client explanations for accounting

Which of the following is not a Sarbanes-Oxley Actrequirement intended to reduce fraud opportunities?a. Increase fines and jail sentences for fraud perpetrators.b. All public companies establish an audit committee ofindependent directors.c. Management of all public companies evaluates andreports on the effectiveness of internal control overfinancial reporting.d. External auditors of large public companies evaluateand report on the effectiveness of internal control overfinancial reporting.