A guest post by Ephraim Unuigbe, the founder of Mou Consulting and a former senior audit professional with more than 14 years’ experience across firms including EY, Grant Thornton and S&W. Full bio at the end of the article.
Key Takeaways
Professional scepticism is shaped by the environment auditors work in — not just individual judgement.
Familiarity, hierarchy, prior-year assumptions and client preparedness can all weaken effective challenge.
When the Financial Reporting Council issued a £3.2 million fine against PwC over the audit of Babcock International, the commentary followed a familiar script. Missed red flags. Inadequate testing on long-term contracts. Failure to properly interrogate cash pooling arrangements. The story was framed simply: a bad audit performed by auditors who dropped the ball.
That framing is both incomplete and unhelpful.
Treating enforcement actions like Babcock as isolated technical failures misunderstands how institutional audit actually operates. The teams assigned to high-profile engagements are not incompetent. They are composed of highly educated, technical, and hard-working professionals. Yet regulatory findings year after year carry the same short diagnosis: a lack of professional scepticism.
Professional scepticism is defined as an attitude that includes a questioning mind, being alert to conditions that may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence. But in practice, scepticism is not merely a psychological state. It is an operational process. And like any operational process, it breaks down under structural, commercial, and behavioural pressures long before an audit partner signs off on an opinion.
To understand why scepticism fails, we have to look past individual accountability and examine the four structural forces that erode it from within.
Structural forces that erode professional scepticism
1. The familiarity threat and the design constraint
The audit profession has long recognised the familiarity threat. It is the core reason mandatory partner rotation rules exist, why firm rotation requirements were introduced for certain public-interest audits, and why ethical standards contain detailed safeguards against familiarity threats.
Yet familiarity continues to quietly compromise independence. The fundamental issue is a structural design constraint: an audit firm is paid by the client it is tasked with scrutinising. Over multi-year engagements, audit teams and client management inevitably build working relationships. Distance is gradually replaced by rapport, and rapport eventually turns into baseline trust.
When an auditor trusts a management team, their baseline assumption shifts. Anyone who has sat in audit rooms during fieldwork knows how this looks in practice. Instead of requiring management to prove their position from scratch, the auditor begins looking for evidence to confirm that management’s explanation is reasonable.
This shift is subtle. It does not look like misconduct. It looks like efficiency. The auditor reviews provided documents rather than interrogating underlying assumptions. They may place too much weight on written representations rather than testing them against other audit evidence. The requirement to maintain professional distance is systematically undermined by the commercial reality of a long-standing client relationship.
2. The internal hierarchy: where junior scepticism goes to die
In any audit engagement, the professionals closest to the detailed evidence are the most junior members of the team. Associates and Senior Associates review the individual contracts, perform the balance sheet reconciliations, and ask the initial questions.
In theory, if a junior auditor uncovers an anomaly, it is escalated to the Audit Manager and Engagement Partner. In practice, the escalation dynamic is fraught with behavioural friction.
When a second-year senior uncovers a complex accounting choice that feels wrong, escalating that concern requires pushing back against two powerful forces simultaneously. The first is client authority: senior finance directors with twenty years of experience can dismiss a junior’s query with a confident explanation and a wave of the hand. The second is internal pressure: engagement managers work against tight fee budgets and delivery deadlines. Raising a fundamental question about an accounting treatment late in the engagement threatens to derail the schedule and overrun the budget.
When a junior auditor brings a concern to a senior team member, the response is too often framed around commercial pragmatism. We looked at this last year. Management knows their business. That is not material for our scope.
When junior concerns are repeatedly dismissed, the team learns an implicit lesson: asking awkward questions creates friction, whereas accepting plausible explanations keeps the engagement moving. Scepticism is filtered out at the bottom of the chain before it ever reaches the partner who has the authority to act on it.
3. Prior-year assumptions and the SALY trap
One of the most insidious drains on professional scepticism is the reliance on prior-year audit files, popularly known as Same As Last Year.
Auditing is an exercise in managing vast amounts of information within constrained timeframes. To maintain efficiency, audit teams naturally rely on the methodologies, risk assessments, and assumptions established in previous years. If a complex revenue recognition model was accepted in 2018, the threshold of proof required to accept it in 2019 is inherently lower.
This creates a compounding risk. Every experienced auditor has inherited a workpaper where a roll-forward calculation contains an old, unexplained manual adjustment that everyone carried over because the partner signed it off last year. If the original analysis contained a subtle flaw or accepted a marginal management assumption, that flaw becomes institutionalised. By year three or year four, the audit team is no longer evaluating the accounting treatment from first principles. They are auditing against their own prior acceptance.
Challenging a long-standing accounting method requires an auditor to implicitly admit that previous audits, which their own firm signed off on, may have missed something. The systemic pressure to maintain consistency can work against the impulse to re-examine established positions.
4. The unprepared client and the audit fog
While much of the debate centres on auditor behaviour, the operational state of the client being audited plays a massive and underreported role in the erosion of scepticism.
When a business approaches an audit without mature control frameworks, clean balance sheet substantiations, or structured evidence, it creates audit fog. Audit teams arrive to find open request trackers, half-reconciled ledgers, and missing supporting documents. Complex businesses can create exactly this type of high-friction environment, where technical clarity becomes obscured by sheer operational scale. In Babcock’s case, the FRC’s findings covered areas including cash pooling and two long-term contracts.
Faced with messy records and approaching filing deadlines, the auditor’s capacity for high-level technical challenge is overwhelmed by administrative firefighting. Scepticism requires cognitive bandwidth. When an audit team spends the majority of its time helping a client reconcile basic schedules or chasing missing documents, they have neither the time nor the energy left to rigorously interrogate management’s judgement-heavy estimates or goodwill impairments.
Ineffective client preparation directly degrades audit quality. It forces auditors into a defensive posture where getting the audit over the line becomes the primary objective, overriding the obligation to critically challenge management.
The regulatory mismatch
When these internal and external dynamics cause an audit to fail, the regulatory response arrives years later.
As the Babcock enforcement timeline showed, regulatory bodies can take years to reach a final determination and issue financial penalties. By the time a fine is announced, the engagement partners have shifted roles, the original staff have scattered, and the financial impact of the fine is absorbed as a cost of doing business.
A regulatory enforcement timeline that takes half a decade cannot act as a real-time deterrent. A penalty regime that hits the firm’s balance sheet without addressing the underlying commercial incentives does not change day-to-day behaviour on active field engagements.
Moving Beyond the Status Quo
If the industry is serious about strengthening professional scepticism, it must address the environment in which auditors work.
Audit firms need explicit mechanisms that reward junior staff for raising technical concerns, ensuring those objections are reviewed independently of the immediate engagement manager’s budget pressures. Rotation schedules must be treated as opportunities for genuine zero-based audits rather than continuations of prior-year work. And for finance leaders and PE sponsors, the conclusion is unambiguous: expecting an external audit to serve as your primary internal control check is a flawed strategy.
Real audit readiness is not about preparing for field week or managing an auditor’s request list. It is about maintaining the internal standards, evidence trails and technical rigour that allow the external audit to focus on assurance and challenge rather than becoming an unpredictable exercise in discovery.
Until the profession confronts these structural design constraints, insufficient professional scepticism will remain a recurring headline rather than a solved problem.
Who is Ephraim Unuigbe?
Ephraim Unuigbe, ACA, CISA, MIoL is the founder of Mou Consulting and an audit, controls and governance specialist with more than 14 years’ experience across Big Four and other major accounting firms, including EY, Grant Thornton and S&W.
He has held senior audit roles and now works with PE-backed and growth-stage businesses on audit readiness, financial controls, IT general controls, financial reporting and the remediation of audit findings. His work focuses particularly on helping businesses strengthen their control environments as they move towards institutional-grade reporting and audit requirements.
Ephraim also serves as an Independent Member of the Audit Committee at Southampton City Council and as a Governor and Audit Committee Member at Itchen Sixth Form College.
This article is part of the Big4News Investigations & Analysis series, which examines the structural forces shaping Deloitte, PwC, EY and KPMG, drawing on documented evidence, regulatory records and case studies to analyse audit quality, governance, incentives, culture and accountability.