The Role and Significance of Auditors’ Professional Skepticism in the Iranian Capital Market: A Phenomenological Study

Document Type : Research Paper

Authors

1 Ph.D Candidate, Department of Accounting, Tabriz Branch, Islamic Azad University, Tabriz, Iran.

2 Associate Prof., Department of Management, Faculty of Economics and Management, Tabriz University, Tabriz, Iran.

3 Assistant Prof., Department of Accounting, Tabriz Branch, Islamic Azad University, Tabriz, Iran.

10.22059/frj.2025.395539.1007752

Abstract

Objective
For trained auditors, it is both natural and instinctive to question companies’ financial information and to remain constantly alert about the basis on which the reported figures have been calculated. Are these numbers truly what they appear to be? Hence, skepticism exists not only at the heart of auditing itself but also within most auditors. Therefore, it can be claimed that professional skepticism is an inseparable part of the auditing process. It should also be noted that demanding excessive professional skepticism from auditors is neither realistic nor beneficial. Considering the time and budget constraints inherent in auditing, auditors cannot continue questioning indefinitely. Auditors must plan and perform audits with a professionally skeptical attitude. The purpose of the present study is to examine the role and position of auditors’ professional skepticism in Iran’s capital market using a phenomenological approach.
 
Methods
This research is developmental, aiming to expand and enhance prior studies on auditors’ professional skepticism. Methodologically, it is a qualitative study utilizing a phenomenological approach. Through structured interviews with 13 experts, including certified public accountants who were members of audit committees of listed companies or served as their consultants, 22 codes or conceptual elements of professional skepticism in Iranian financial reporting were identified. The consequences of adhering to these 22 concepts were then categorized into market-related, reporting-related, environmental, and auditing outcomes. It is noteworthy that the interviews were conducted purposefully during the year (2024–2025).
 
Results
The results revealed several key concepts of auditors’ professional skepticism. These included auditors’ professional standing, company losses, weaknesses in past financial trends and patterns. Additional concerns were inability to repay debts, weak internal controls, lack of consistency in accounting principles and standards, long-term conflicts of interest between managers and auditors, related-party transactions, revenue recognition, valuation of raw materials inventory, finished goods and work-in-progress inventory, recognition and measurement of operational provisions, recognition and measurement of productive biological assets, foreign exchange from exports and severe currency fluctuations, failure to recognize impairment of receivables, loans and related provisions, modified audit opinions in prior years, first-year audits, non-audit service fees received during the reporting year, unabsorbed production costs, investments, decline in operating profit compared to the previous year, revaluation of fixed assets, cost of goods sold recognition, assets under construction, employee retirement benefit obligations, and IT systems and controls. Among these factors, the company’s loss-making status and the recognition of cost of goods sold ranked first and second, respectively. Following them, in order, stood the decline in operating profit, valuation of raw materials and work-in-progress inventory, revenue recognition, related-party transactions, lack of consistency in accounting principles, recognition and measurement of operational provisions, foreign exchange from exports and currency fluctuations, and failure to recognize impairment of receivables all identified as the ten key factors attracting the attention of stakeholders to audit reports from the perspective of professional skepticism.
 
Conclusion
Before shareholders and stakeholders of listed companies decide to invest or divest, it is advisable for them to carefully consider the quantitative and qualitative value added provided by auditors’ reports. Each section of the report embodies the auditor’s professional skepticism regarding the company’s operations.
 

Keywords

Main Subjects

References

 
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Financial Research Journal
Volume 27, Issue 3
2025
Pages 778-798

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