Does your business place an emphasis on professional skepticism in the workplace? If it doesn’t, or worse the topic has never been brought up, then you’re missing out a crucial part of upholding the integrity of your business. Professional skepticism provides a natural and healthy way to check for mistakes, but it also allows you to detect fraud. Keep reading if you’re curious about how professional skepticism can strengthen your business.
Are Your Audits Conducted With Professional Skepticism?
One of the most overlooked parts of conducting an audit is the application of professional skepticism. This relates to having a curious and investigative attitude when receiving information, analyzing documents, and listening to explanations. While this doesn’t mean you should be downright suspicious, you should eagerly seek for convincing and further explanation anytime something looks even slightly off.
Professional skepticism can be easy to ignore when conducting internal audits, simply because the familiarity can make it easy to accept information. You never want to assume the worst from one of your employees, but that doesn’t mean you can accept everything they say without question. As a matter of fact, internal audits are often very poor for detecting fraud.
A lack of professional skepticism is one of the main reasons this is true, but internal audits also fail because of the way audits are conducted and deception by fraudulent employees. Taking the time to improve the application of professional skepticism will help shape how future audits are done, which will naturally help to deter fraud with a greater risk of getting caught.
Outside of auditing, professional skepticism is still relevant for ensuring your business runs smoothly. A questioning mindset can help keep your employees accountable to one another by verifying work is done correctly. Mistakes and any potential fraud can be identified far sooner if everyone practices professional skepticism. Anytime errors and fraudulent behavior occurs, you want to address the issue as early as you can to minimize the impact.
Why is Professional Skepticism Important?
With this in mind, professional skepticism can be viewed as an essential skill for business. If you and your employees are not currently good at exercising professional skepticism, you do have the ability to improve that. As you put more focused effort and practice into a skill, you naturally learn how to do it better without thinking much about it.
This applies perfectly to professional skepticism. It will definitely feel unnatural and uncomfortable to be skeptical of fellow employees, but that will fade with time when it becomes a habit. This is why you need to place a heavy emphasis on using professional skepticism in the workplace as soon as you can.
Professional skepticism is certainly useful for identifying errors and detecting fraud, but it is also a critical component of showing that your business has integrity. Internal audits can only be effective when they are conducted free of any bias. The act of being skeptical will naturally help erode bias, so it is important that auditors make sure to ask for as much additional information is necessary rather than accepting the first document they see.
When your clients and any stakeholders take notice that you’re dedicated to conducting business with integrity, you’ll definitely feel the difference. Integrity is an intangible benefit that can help send customers your way and give them the extra confidence they need to close a deal. When your business operates with integrity, it shows that you word is good and that you actually mean what you say.
How it Shapes an Audit
Having integrity is certainly something that can benefit a business of any size. That doesn’t mean that it is easy to practice professional skepticism. The American Institute of Certified Public Accountants (AICPA) has taken notice of this and has proposed new standards to help clarify the definition of professional skepticism and shape how auditors view information to use more professional skepticism.
These new standards highlight principles that auditors should use to help an auditor form an opinion. These principles include how accurate information is, how complete it is, how authentic the source of information is, and whether there is any risk for an auditor to have bias. Accuracy and completeness aren’t new concepts, but authenticity and bias risk are.
With these two new principles in mind, auditors will now be required to take extra steps when considering any information. If information is coming from an external source, it is important to understand how reliable the source is.
Even if it is determined that a source is not particularly reliable, the information should still be considered later on. Auditors will now also be expected to consider all information presented to them, regardless of whether it supports or disproves a claim, to determine if enough evidence has been provided.
Finally, auditors must now carefully consider their own bias and whether their feelings or emotions are influencing a decision. Especially with internal audits, it can be easy to assume your employees wouldn’t do any wrong and to accept any explanation given to you.
This kindness is the exact environment ripe for fraud, allowing red flags to go unnoticed or easily explained away. Audits must be as impartial as possible, something that is much easier to achieve when you use professional skepticism.
Experts on Professional Skepticism
Professional skepticism is an incredibly important skill to employ for your business to show integrity. Not only does it show your dedication to holding your word, but it also will allow you to better identify mistakes and fraud. This can be difficult to do with internal audits and conflicting personal feelings, but professional skepticism will also help you to help identify and avoid any of your own personal bias.
While practicing professional skepticism is certainly beneficial for your business, it definitely isn’t something easy to implement. It requires you to adapt a different mindset, one that you likely won’t find comfortable. To help you make this transition easier and help understand professional skepticism more, get in touch with a professional accountant at the Felde CPA Group! With years of experience and an impartial professional external opinion, you’ll have the perspective you need to conduct stronger audits!