Late in an audit, the finance director explains a large, unusual journal entry posted just before the year end and says that no supporting documentation is available. Which response best demonstrates professional scepticism?

Correct answer: C) Seek evidence to corroborate the explanation and consider whether the entry may indicate fraud or management override of controls

Explanation

Professional scepticism is an attitude that includes a questioning mind and a critical assessment of evidence. Unusual entries made close to the year end without documentation are a recognised fraud risk indicator, so the auditor should seek corroborating evidence rather than rely on management's word or on past experience of the client's honesty. Scepticism does not mean assuming fraud without evidence, and simply recording management's explanation does not evaluate it.