Lyceum: Importance of Professional Skepticism
by Melissa Silverberg
Bruce J. Piller and Philip J. Bach, both of KPMG LLP spoke to students in the Accountancy Lyceum on September 11, 2008 about audit quality and professional skepticism, a topic of interest to many given the importance of financial reporting to the effective functioning of our capital markets.
The speakers brought a twist of entertainment and fun to a speech that many in the audience may not have expected.
Piller, Manager Partner of KPMG LLP's Chicago office called professional skepticism "an incredibly important topic for everyone in the room."
Bach, Director of the Forensic Practice sector of KPMG LLP, discussed his background investigating cases where people may be embezzling or "cooking the books."
Understanding professional skepticism and its importance was the main topic of the session. The speakers explained that professional skepticism is an attitude that involves having a questioning mind. Yet, this does not mean automatically assuming that all clients are participating in fraud.
In his portion of the presentation, Bach explained that forensic accountants "have a different type of mind. We often think like crooks, we are trained to think that way."
Bach also explained that a "fraudster" could be anyone and there is no typical profile for them to fit. Piller and Bach showed two videos giving examples of both good and bad supervision within the audit team and good and bad questioning of client senior management. In the first of these videos students saw the client evade questions and get away with it. In the second video the actors demonstrated the correct way to conduct an interview of client personnel by asking probing questions.
Piller explained a challenge in auditing that some students may experience in their careers. Usually the auditor wants to be friendly with a client, but as Piller said, "you must be careful not to get so close as to compromise your objectivity and independence."
While accountants need to have faith in their clients, Bach recommended the strategy of "trust but verify."
Students later viewed a video of Walter Pavlo, former senior manager at MCI turned felon, convicted of wire fraud and money laundering at WorldCom.
To stress the importance of skepticism in performing audits, Piller said accountants must always act with "integrity and diligence." He also stressed the concept of acting with objectivity and being independent.
"It was a great lecture," said Jennifer Mokry, senior in accounting. "It was a lot more lighthearted and interactive than I would have thought."