Wednesday, October 6, 2010

Report on Deterring and Detecting Financial Reporting Fraud

Newly released report via the Center for Audit Quality (T/Y AccountingWeb). I found the excerpt below interesting. In my interview with former criminal CFO Sam Antar, he stated that the financial crime is rampant because we live in a "trust but verify", "innocent until proven guilty" society which allows criminals to take advantage of their victims.

- Fraud Girl
Skepticism—a questioning mindset and an attitude that withholds judgment until evidence is adequate—promotes risk awareness and is inherently an enemy of fraud. Participants in the financial reporting supply chain naturally believe that the organizations with which they are associated have integrity, and are therefore predisposed to trust each other. But this bias to trust can also inhibit raising questions, and it is all the more reason why stakeholders should consciously adopt an attitude of skepticism.
Skepticism involves the validation of information through probing questions, critical assessment of evidence, and attention to red flags or inconsistencies. Skepticism does not mean a lack of trust. Rather, it means, “I trust you, but my responsibilities require me to confirm what you and others tell me.” Some refer to this as the “trust but verify” approach.
The starting point for effective skepticism is the recognition that even the best system of internal control has weaknesses, and fraud can occur. Effective skepticism involves knowledge of the company’s business, including the risks associated with the industry and company, the manner in which the company manages those risks, and the company’s overall internal control structure.
Click Here to Read: Report on Deterring and Detecting Financial Reporting Fraud  

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