Magazine article The CPA Journal

Problems to Avoid When Brainstorming Fraud Risks

Magazine article The CPA Journal

Problems to Avoid When Brainstorming Fraud Risks

Article excerpt

Nine years ago, in response to several accounting scandals, the AICPA passed Statement on Auditing Standards (SAS) 99, Consideration of Fraud. This standard requires auditors to conduct brainstorming sessions to increase their ability to identify potential sources of financial statement fraud. However, using brainstorming to effectively address this area of concern continues to be problematic for practitioners. In 2003, the SEC identified auditor judgment errors, including the failure to conduct adequate risk assessment, as one of the leading causes of audit failures. More recently, the Public Company Accounting Oversight Board (PCAOB) issued a report criticizing the profession for excessive variation in the quality of brainstoiming sessions. Academic studies also echo the concern of the PCAOB and SEC that brainstorming is not being done correctly by practitioners. Clearly, auditors will benefit from a greater understanding of how to improve brainstorming sessions.

There are two key challenges to improving group brainstorming sessions: 1) the brainstorming leader must properly assess any deficiencies and problems in the current process, and 2) the brainstorming leader must apply the proper remedy to fix the problem. In relation to the first challenge, it is often difficult to determine problems in brainstorming sessions because many of these problems come from attitudes, beliefs, and cognitive processes with which the auditor may be unfamiliar. One purpose of this article is to provide descriptions of common brainstorming problems so leaders of brainstonning sessions can better diagnose the problems in these sessions.

In relation to the second challenge, there are many varying solutions an auditor can employ to improve brainstorming sessions. But an auditor must be careful to apply the correct remedy to the problem, because solutions for some problems may exacerbate other problems. This article will address seven of the most common problems in brainstorming and provide recommendations for ways practitioners can overcome them to more effectively identify fraud risks.

Evaluation Apprehension

"If I say this, everyone is going to think I'm stupid. I'd better say nothing at all."

This line of thought could be had by a member of the group who is feeling evaluation apprehension. Evaluation apprehension comes from the fear of critical failure and social reprisal from other members of the group when the member's ideas are presented. Because team members might worry about how others might judge their ideas, they wait to express ideas they believe the group will accept. This is especially likely in auditing settings where staff and senior auditors are expected to contribute with partners and managers included in the brainstorming teams.

To avoid this, all members of a group should follow four basic rules that come from Alex Osbom's book, Applied Imagination (Scribner, 1979). The first mie is that all members must not judge any idea either verbally or mentally until after the brainstorming session is over. Second, all members are prohibited from criticizing members of the group or the ideas presented. Third, freewheeling should be encouraged and a focus should be placed on sharing as many ideas as possible. Last, group members should think of ways the existing ideas can be combined or improved upon. By creating an environment where judgment and criticism is replaced with originality and teamwork, people will less likely fall to evaluation apprehension and will be more willing to contribute to the team.

Groupthink

"My superiors are focusing on the inventory account; I'd better think of possible frauds in this area because I want to be like them."

This is an example of groupthink - group members' willingness to conform to others' ideas in order to preserve unity and cohesion. This is usually problematic in a brainstorming session when the group is composed of people with different levels of authority, because the team members with the least amount of authority often feel consciously or unconsciously compelled to support their superiors. …

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