Fraud can be one of the most significant consequences of failure to exercise skepticism.
It can often be overlooked in mitigating the risk of fraud and misconduct, which illustrates why it is important that companies and their stakeholders should recognize the significance of and challenges associated with exercising an appropriate level of skepticism.
The word skepticism comes from the Greek word skeptikos, which means “inquiring” or “reflective.” Simply put, skepticism is a questioning mindset, and it requires an understanding that even the best organizations can be susceptible to fraud.
It is important to note that skepticism is not an end in itself and is not meant to encourage a hostile atmosphere or micro-management. Management, audit committees, and internal auditors, at a minimum, should take a “trust but verify” approach with systems, methods, and communications rather than accept critical information at face value.
Embracing skepticism throughout the financial reporting supply chain increases not only the likelihood that fraud will be detected but also the perception that fraud will be detected, which reduces the risk that fraud will be attempted.
The Anti-Fraud Collaboration provides resources that hone the skill of skepticism in the financial reporting chain and that explore the benefits of embracing a skeptical mindset.
See below for resources on skepticism:
In episode two of the Skepticism Webinar Series, two panelists address the issues of etiquette and ethics that can arise when having to ask “skeptical” questions. It is important to not cause offense or weaken trust when tough questions on sensitive topics are...
In the third episode of the Skepticism Webinar Series, you will hear first-hand from the foremost practitioners of professional skepticism—auditors. When what you are hearing doesn’t match what you are seeing, it’s time to be skeptical. In this animated exchange, the...
Episode four of the Skepticism Webinar Series dives into how the board and the audit committee play a key role in preventing financial reporting fraud using a healthy amount of skepticism. An effective board and audit committee can bring the best out in external...
The panelists of episode five of the Skepticism Webinar Series explore just how financial executives can implement the vital skill that is skepticism. Although financial managers are often found on the receiving end of skepticism, it is important for them to exercise...
The final webinar in the Skepticism Series addresses the role of the internal auditor. With their daily presence inside a company and their constant focus on internal controls—internal auditors are in a uniquely strong position to help deter and detect financial...
The Kendallville Bank Case Study explores potential material fraud at a fictitious regional bank. With a fact pattern revolving around the questionable accounting decisions of a star executive, this hypothetical scenario is designed to foster a greater understanding...