“It Doesn’t Make Sense”: Professional Skepticism As Sensemaking Free

The quote above is a story narrated by a senior auditor during an interview to understand how auditors exercise professional skepticism in their daily work. Professional skepticism is a fundamental attribute of auditors, defined as “an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence” (International Standard on Auditing 200). However, demonstrating a questioning mind or critically assessing audit evidence can have different interpretations and applications in practice (Glover and Prawitt 2014). In audit practice, the questioning mind and critical assessment of evidence are embedded in frequent collaborations and negotiations between auditors and clients, as well as ongoing interactions among an audit team (Pentland 1993). Auditors’ “hunch and intuition…are formed from repeated collective interactions within the audit team” (Power 2003, 385). However, how professional skepticism is applied within these ongoing interactions is not well understood.

Xu, Yang, and Fukofuka (2023) linked professional skepticism to auditors’ seemingly mundane actions, making the concept more practical and tangible rather than a “buzzword.” They interviewed 35 auditors based in New Zealand. Most (33) were from the Big 4 accounting firms, with two from other large firms. The auditors were categorized into two groups: junior auditors (under five years of experience and below the position of Audit Manager) and senior auditors (over five years of experience and at or above the position of Audit Manager). See Table 1 for details.

Through analysis of the stories collected from the interviews, Xu et al. (2023) were able to study professional skepticism in an episodic fashion. They find that exercising professional skepticism resembles a recursive sensemaking process. Sensemaking, as explained by Weick (1995) and Maitlis and Christianson (2014), occurs when people encounter something unexpected or confusing and try to understand it by finding a plausible explanation. It starts with noticing something unusual and asking, “What’s going on?” This is called noticing a cue. Then, people try different actions to create an interpretation until they find a plausible one to explain the cue. Simply put, people take action and see what happens next. The understanding accumulated from sensemaking efforts is retained to inform future sensemaking. However, people may miss subtle cues or ignore them, and no sensemaking will occur. Sensemaking emphasizes enactment, meaning our actions shape the reality or environment in which we work or live in. We make sense of the reality shaped by the results or consequences of our actions. Importantly, sensemaking can be a collective effort, building on individual sensemaking. It occurs when individuals try to construct a shared understanding by exchanging provisional understandings and agreeing on a course of action (Maitlis 2005).

Let us use the story in the quote above to illustrate the importance of noticing a subtle cue that triggers professional skepticism. The protagonist is a first-year auditor. While auditing the artworks, he noticed that the curator was not knowledgeable about the art in their collection, which triggered his skepticism. Although the junior auditor completed all the required audit tests for the assets, none of the tests provided a plausible explanation. He then shared his concerns with his senior manager (the interviewee). The manager listened, acknowledged the junior auditor’s cue, and guided him to ask the client’s CEO for more information. This led them to discover that some artworks were not the client’s assets.

This story reveals two important aspects of professional skepticism. First, professional skepticism may not be premeditated but can emerge from interactions, such as between the junior auditor and the curator. The junior auditor did not know he would find a misstatement; he was simply curious about the art. He noticed the curator’s unsure responses and reported it to the senior auditor. Second, professional skepticism is not necessarily an individual effort. The senior auditor affirmed the junior’s skepticism and guided him to further sensemaking efforts, even if it was a subtle cue. The senior auditor could have dismissed the concern, causing the junior auditor to drop the issue, and the sensemaking effort could have ceased prematurely. Furthermore, the story indicates that exercising professional skepticism requires auditors to improvise as situations arise rather than merely following the prescribed audit procedures.

Once professional skepticism is triggered, auditors need to create a plausible interpretation. Obviously, clients are a primary source of information when auditors question the cues they notice, but some stories indicated that skepticism could be settled prematurely when clients give reasonable answers, which turned out not to be the case. So many interviewees focused on the importance of substantiating clients’ claims without “taking their word for it” in their stories.

This story illustrates a junior auditor who questioned a client about increased employee expenses but initially accepted the client’s explanation without substantiating it. The client claimed the increase was due to a bonus paid to the General Manager, which seemed reasonable. However, professional skepticism requires corroborating explanations with evidence. Furthermore, this story also indicates the collective sensemaking of the two auditors. The junior auditor’s insufficient skepticism was strengthened by the question from the senior auditor. Correspondingly, the senior auditor did not know the reason for the increased expenses until the junior auditor went back to the client for further evidence. Digging further into evidence led the auditors to create a plausible explanation that settled their skepticism.

Most stories concluded with auditors validating clients’ explanations with further evidence or finding out clients were wrong, thus completing the sensemaking process. Auditors retained the understanding from one incident of exercising skepticism, which informs subsequent exercise of skepticism. For example, auditors learn which clients’ quality of work is consistently poor or which clients tend to make things up. When they work with those clients again, their skepticism is heightened.

A few stories reveal that professional skepticism is demonstrated in persistent questioning, particularly when clients are adamant. These stories emphasize the grit driven by their skepticism to push back their clients. The story below shows that after the junior auditor determined their client was wrong in recording an accrual, he challenged the client.

The story shows the outcome of the junior auditor’s sensemaking process, leading him to conclude that the client’s treatment was incorrect but bamboozled him. Withstanding the pressure from the client, the auditor guided the client through his sensemaking process by showing them a calendar and counting the number of days. His skepticism is shorn through his actions to give sense to his client.

Overall, Xu et al. (2023) find that exercising professional skepticism begins with noticing “this does not make sense.” They show the cues that trigger skepticism are emergent when auditors perform mundane audit tests, converse with clients or review audit workpapers. Noticing a cue is often impromptu and fleeting. This means cues can be dismissed or genuinely overlooked. Auditors then figure out “what to do next” to create a plausible explanation. However, exercising professional skepticism could be ceased at any point due to pressures with deadlines and budgets.

Professional skepticism is commonly accepted as an inquiry mindset or a questioning mind. However, this perception can be ambiguous because a mindset is not directly observable. As an interviewee said, “how have we demonstrated–what did we do that was professionally skeptical” (emphasis added). From a sensemaking perspective, auditors’ everyday, seemingly mundane checks and conservations are crucial in triggering and settling their professional skepticism. The sensemaking process provides significance and meaning to auditors’ microlevel actions, thus encouraging them not to treat these acts as mere box-ticking exercises. It also directly links auditors’ professional skepticism to their more observable and tangible actions. This perspective is likely to make professional skepticism more readily comprehensible. Our practical implications are discussed from the following two aspects for auditing firms and practitioners.

Xu et al. (2023) show that professional skepticism is fluid and dynamic, making it easy to overlook or dismiss cues. Appropriate skepticism is reflected in how auditors notice and respond to cues arising from their actions. Auditors must recognize that their mundane checks are important as misstatements and errors do not reveal themselves. Conversations can yield cues that otherwise would not be available. Some stories even show auditors going beyond prescribed audit procedures; otherwise, nothing would have been found. This underscores the need for auditors to remain attentive to subtle cues that emerge from their actions and interactions rather than relying solely on predetermined procedures.

The focus on actions suggests that the failure to exercise professional skepticism may not solely be a mindset issue but also a matter of effort and attentiveness. Auditors who see themselves as naturally trusting can develop greater confidence in their skepticism. Conversely, auditors naturally skeptical should remain cautious and attentive to the outcomes of their actions and interactions. Furthermore, this indicates that auditing firms should promote attentiveness to enhance professional skepticism. This is particularly relevant in the social media era, where auditors may have shorter attention spans. Accounting firms could introduce training to enhance attentiveness and raise auditors’ awareness of the importance and consequences of their actions. This may contribute to the development of professional skepticism.

Xu et al. (2023) find that professional skepticism is not solely an individual endeavor but involves collective sensemaking efforts within an audit team. This aspect reinforces the collaborative approach to audit work. Each team member holds a different piece of the puzzle, encouraging junior auditors to share their cues with their seniors. Junior auditors frequently interact with clients and source documents, allowing them to notice cues that might otherwise go unnoticed. Therefore, senior auditors should be open to the observations and questions of their junior colleagues, recognizing them as valuable “eyes” and “ears” in the field. Practically, this means junior auditors should raise issues even when unsure, and senior auditors should not quickly dismiss these observations. Instead, senior auditors should work with junior auditors to determine whether further sensemaking is warranted.

Recognizing the important role that junior auditors play in coconstructing skepticism may increase their confidence and make them feel more empowered. This is likely to contribute to a culture that encourages them to raise cues without fear. Additionally, firms should provide feedback, recognizing and rewarding auditors who demonstrate professional skepticism. Linking the behavior of being skeptical to performance appraisal outcomes can encourage juniors to express their concerns more comfortably, thereby fostering a culture that values sensemaking and continuous learning and ultimately enhancing professional skepticism across all levels of the audit team.

Clients play an important role in directing auditors’ sensemaking efforts. Xu et al. (2023) reveal that subtle cues are more observable during face-to-face interactions with clients. This indicates the importance of fostering a collaborative relationship with clients to enhance auditors’ professional skepticism. In-person interactions can encourage clients to be more open, allowing auditors to observe nuances in body language, tone, and hesitations. In a post-COVID-19 world, the prevalence of flexible working arrangements has increased reliance on remote interactions and electronic communications. Consequently, auditors have fewer opportunities to engage with clients directly, which may hinder their ability to notice important cues. Therefore, it is essential to encourage auditors to work on clients’ premises, whenever possible, to facilitate meaningful interactions and the identification of subtle cues.