Deterrence and detection of financial reporting fraud requires all participants in the financial reporting supply chain to exercise skepticism. Skepticism is a questioning mindset, and it requires an understanding that even the best organizations can be susceptible to fraud. 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.
Skepticism is not an end in itself and is not meant to encourage a hostile atmosphere or micro-management. The word skepticism, in fact, comes from the Greek word skeptikos, which means “inquiring” or “reflective.”
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.