Herbert M. Chain
Shareholder, Mayer Hoffman McCann P.C. Deputy Technical Director, Global Audit Group, Kreston Global
Herbert M. Chain is a highly experienced auditor and is a financial expert with over 45 years of experience in business, accounting, and audit, having served as a Senior Audit Partner at Deloitte. He holds certifications from the National Association of Corporate Directors and the Private Directors Association, with knowledge of private company governance and effective risk management. He has extensive knowledge in the financial services sector, including asset management and insurance. Herb is a member of MHM’s Audit Methodology Steering Committee.
Contact Herb here
The auditor’s responsibility for “due professional care” under professional standards
October 6, 2023
Auditors have a responsibility to perform their work with due professional care. It is a fundamental principle of the auditing profession and is essential to maintaining public confidence in the integrity of financial reporting.
What is “due professional care”?
“Due care” is a legal term that refers to the standard of conduct that a person is expected to exercise in a particular situation. Public Company Accounting Oversight Board (PCAOB) AS 1015: Due Professional Care in the Performance of Work, discusses the obligation for due care and cites a well-known legal treatise, Cooley on Torts:
Every man who offers his services to another and is employed assumes the duty to exercise in the employment such skill as he possesses with reasonable care and diligence. In all these employments where peculiar skill is requisite, if one offers his services, he is understood as holding himself out to the public as possessing the degree of skill commonly possessed by others in the same employment, and if his pretensions are unfounded, he commits a species of fraud upon every man who employs him in reliance on his public profession.
Within an audit context
In the context of auditing, due professional care means that the auditor must exercise the same degree of skill and care that a reasonably prudent auditor would exercise in similar circumstances. It is a subjective standard, and what constitutes due professional care will vary depending on the specific circumstances of the audit. However, there are some general principles that can be applied to determine whether an auditor has exercised due professional care.
One important principle is that due professional care requires the auditor to be objective and independent. The auditor must not have any conflicts of interest that could impair their judgment. The auditor must also be familiar with the auditing standards that apply to the audit and must comply with those standards.
Another important principle is that due professional care requires the auditor to exercise professional scepticism. This means the auditor must not simply accept management’s representations at face value. The auditor must critically evaluate all of the evidence that they gather and must be prepared to challenge management’s assertions when necessary.
Professional standards in due professional care
The foundation of auditors’ due professional care lies in the standards set by professional and regulatory bodies. According to the American Institute of Certified Public Accountants (AICPA), “a member shall perform professional services with competence and due professional care.” The AICPA Code of Professional Conduct (Section 0.3000.060) requires members “to observe the profession’s technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of their ability.” This includes exercising due professional care in the performance of all professional services.
On the international stage, the International Ethics Standards Board for Accountants (IESBA) Code of Ethics for Professional Accountants has, as a fundamental principle, “Professional Competence and Due Care”, and notes that a professional accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments. A professional accountant should act diligently and in accordance with applicable technical and professional standards when providing professional services.
Other professional accounting and auditing associations also have codes of conduct that address the auditor’s responsibility for due professional care. For example, the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Federation of Accountants (IFAC) includes as a fundamental principle “Professional Competence and Due Care”, and states that “a professional accountant shall perform professional services with due professional care, competence and professional judgment.” Subsection 113 requires a professional accountant to attain and maintain professional knowledge and skill, and to act diligently and in accordance with applicable technical and professional standards. It also requires the “exercise of sound judgment and skill”, and “maintaining professional competence” via professional development.
An auditor’s responsibility
Auditors have a responsibility to exercise due professional care in all aspects of their work, from planning and performing the audit to reporting on the results. Accordingly, this responsibility includes:
• Obtaining sufficient appropriate audit evidence to support their audit opinion.
• Exercising professional scepticism. This means the auditor must not simply accept management’s representations at face value. The auditor must critically evaluate all of the evidence that they gather and must be prepared to challenge management’s assertions when necessary.
• Being familiar with the auditing standards that apply to the audit and must comply with those standards.
• Being objective and independent. This means that the auditor must not have any conflicts of interest that could impair their judgment.
The responsibility for due professional care in auditing is not merely a professional obligation but a moral imperative. Auditors serve as gatekeepers of financial integrity (i.e., we serve the “public interest”), and their failure to exercise due professional care can have severe consequences for stakeholders and the auditors themselves. Auditors must remain vigilant, diligent, and sceptical throughout the audit process. By adhering to the standards set forth by professional organizations and regulatory bodies, auditors can fulfil their duty to the public. Regulatory bodies continue to scrutinise auditing practices, holding firms and professionals accountable for the failure to exhibit due professional care. In a world where financial markets are increasingly interconnected, upholding the principles of due professional care is not just a professional obligation—it is essential for maintaining our credibility as a profession.
If you would like to speak to a Kreston Global audit expert, please get in touch.