Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Why auditing is not like watching a movie

with one comment

I walk into the room while my wife is watching a movie on Lifetime Movie Network™.

I watch for 30 or 60 seconds.

I guess who is the bad guy/bad gal.

I’m usually right.

How is it possible to guess correctly most of the time? Well, let’s see…

I know there’s normally a bad guy on the network’s movies. There’s usually a small cast of characters and the bad gal gets lots of screen time. There’s usually ominous music playing when the bad guy is engaged in bad-guy-stuff.

How does that help CPAs? 

Prof. Anthony Catanach discusses his visits with fraudster Sam Antar at Crazy Eddie Revisited: Old Lessons for Today’s Accountants.

Mr. Antar suggests that there’s probably 10% of the population who are downright unethical. Some people will cheat or lie or commit fraud if they can find a way to do so. Some people will calmly lie to your face.

When he committed his fraud Mr. Antar was smooth, polite, and very nice to the auditors. He flattered them. He manipulated them.

He tried and tried but somehow was just not able to get key things to them until late in the audit. Sorry ’bout that. Just soooo busy, ya’ know?

Right.

What was the real story? He intentionally held back on key documents. He tried to push the auditors to do 80% of the work in the last 20% of time. He knew that increased the chance that key tests would get dropped or forgotten. Lot’s of stuff transforms to immaterial on the last day of field work.

Audits aren’t like movies

Unlike when watching a certain genre of movie, when we perform an audit we don’t know for sure whether there will or won’t be a fraudster in the organization. Normally everyone is straight with the auditor.

The fraudster will be one of many people we deal with over the course of the audit, not onstage in all discussions.

He or she will be nice and complementary and polite. Just like everyone else at all of my clients.

A fraudster will use flattery and manipulation. It’s difficult for most of us to recognize we are the recipient of flattery

And most importantly, there won’t be any ominous music playing in the background.

When we encounter a grand manipulator in life there’s no visual clues we are getting played. There’s no music warning us of an impending disaster. No mysterious change in lighting when the person walks into the room.

In one of my audits, there was an ongoing debate with one of the senior executives. He or she was trying to cook the books. The person wanted a specific result in the financial statements and had the accounting trick to get where he wanted. The plan didn’t work by the way. I remember thinking at the time there should be a shift in lighting or ominous music playing in the air when I walked into this person’s office.

Real life, unlike movies, doesn’t give those clues.

Instead, when conducting an audit we need to maintain awareness that we could be dealing with a sociopath, a fraudster, or someone who is manipulating us.

Keep your guard up.

Go read the Grumpy Old Accountants’ post to help raise your guard.

Written by Jim Ulvog

June 11, 2013, 7:53 am at 7:53 am

Posted in Audits, Fraud

Tagged with ,

One Response

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  1. Read “Snakes in Suits: When Psychopaths Go to Work: Paul Babiak …”. Babiak finds that 2-3% of executives are psychopaths.

    Gary Zeune

    June 12, 2013, 18:26 pm at 6:26 pm


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