You are the Audit Manager in charge of the audit of Pleasant-Smile Company Limited which has been making losses in its operations owing to many factors including competition, impairment of some of its non-current assets and losses incurred on derivatives in its hedging activities as well as problems of complying with many laws and regulations governing its operations. During your briefing meeting with the Engagement Partner, he drew your attention to the Question and Answer paper on Professional Skepticism issued by the International Auditing and Assurance Standards Board (IAASB) and requested you to discuss its contents with the audit team before commencement of the field work.

You are required to

(a) discuss the concept of Professional Skepticism and its importance in audit;

(b) assess and evaluate the areas in an audit of your client where the audit team members need to exercise a high level of professional skepticism.