While professional scepticism is usually associated with audit work, it is increasingly being listed as a key skill for every finance professional. But what is it and how do we use it?
It is defined as "an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence" by International Auditing and Assurance Standards. So how do we, as accountants, apply that same level of objectivity to other situations to remain the voice of reason? And how do you recognise your own cognitive bias, and then remove it?
To start, we can look at some of the reasons why there may be a bias:
Lack of information
The UK's Financial Reporting Council (FRC) proposes that material misstatement must actively be searched for, and this is only possible with a high degree of knowledge of the business.
Gaining a high degree of knowledge can be extremely time consuming, and may be considered invasive.
If someone does spend time finding out more information, they are open to the criticism of delaying the financial reporting process and setting back plans.
How can you be more sceptical?
Does it make sense?
What evidence is there? Is it strong enough?
Are there limitations on your procedures?
Are the assumptions still appropriate in a changing climate? Are they biased?
Are management's assumptions and forecasts appropriate?
Do you understand the information provided enough?
Do you need more time to get enough information?
It seems simple, but it is especially important as accountants to remain alert to anything that may indicate misstatement because of error or fraud, and remain critical and objective. To do either of these, information and knowledge about a business is key and sometimes, gaining this knowledge can be met with resistance. Don't always accept what you are told or provided with at face value and don't be afraid to sometimes challenge management in the matters of finance.
It is particularly important to dig deeper and not be over-reliant on information provided – not just by the accounting team, but also from other departments. If sales and marketing teams are setting their sales targets, try and ask yourself the questions above. The same goes for negotiating the budget process. Can you be certain there is enough evidence and no bias from the other side or from your own assumptions? Try to focus on not being swayed by pressure from the outside, while also remaining attentive to any non-rational ways you may reach your own decisions.