Skepticism and the
Winter Management Accountant:
2008
Insights for Fraud
Detection
VOL.9 NO.2
B Y K I M B E R L Y F. C H A R R O N , P H . D . , C M A ,
A
AND
D. JORDAN LOWE, PH.D.
SURVEY EXAMINES THE LEVEL OF PROFESSIONAL SKEPTICISM AMONG MANAGEMENT
ACCOUNTANTS.
WITH
INCREASED EMPHASIS BEING PLACED ON DETECTING AND PRE-
VENTING FRAUD, COMPANIES MAY BENEFIT FROM ENHANCING THE ABILITIES OF THEIR
EMPLOYEES TO EXHIBIT SKEPTICISM.
EXECUTIVE SUMMARY Skepticism has long been held as a fundamental concept for the public accounting profes-
sion. Exhibiting skepticism is presumed to increase the likelihood of detecting fraud in the conduct of an audit. With
increasing incidences of fraud within organizations, however, the accounting profession as a whole needs to embrace
the concept of skepticism. This study examines skepticism within the management accounting profession. We measure the levels of skepticism within a group of management accountants and examine characteristics associated with
higher levels of skepticism. We also provide insights into the implications of skepticism and suggestions on how firms
can capitalize on this concept to increase fraud detection.
W
attitude that includes a questioning mind, a critical
assessment and objective evaluation of audit evidence,
and a willingness to suspend judgment about the honesty of client management. In 2002, the American Institute of Certified Public Accountants (AICPA) issued
SAS 99, “Consideration of Fraud in a Financial Statement Audit,” which addresses skepticism and emphasizes the auditor’s responsibility to explicitly consider
the possibility of fraud on every engagement.1 The
rationale behind these standards is that high levels of
professional skepticism (i.e., assuming a more questioning attitude) enhance the ability to detect fraud.
ebster’s Dictionary defines skepticism
as “an attitude of doubt or a disposition to incredulity either in general
or toward a particular object.” In
the accounting profession, skepticism has long been recognized as a fundamental principle of auditing. The first codification of auditing
standards, Statement of Auditing Standards No. 1 (SAS
1), “Codification of Auditing Standards and Procedures,” promulgates the idea that auditors must use
professional skepticism when engaged in an audit.
Skepticism is defined in the auditing standards as an
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uct for 2003 translates to approximately $660 billion in
total losses, up from $400 billion in 1996 and $600 billion in 2002. Furthermore, once an organization has
been defrauded, it is unlikely to recover its losses. The
survey shows that victim organizations recover an average of 20% of the original loss, and 40% of the companies recover nothing at all. Small organizations
represent the greatest proportion of reported fraud cases
(nearly 46%), but the cost per incident of fraud is often
higher in large organizations. While the true cost of
fraud to any single organization is hard to measure, the
magnitude and prevalence of fraud in our society
should put all organizations on alert.
Despite auditing standards that require professional
skepticism, 60% of the Securities & Exchange Commission (SEC) cases against auditors cite a lack of professional skepticism as the cause for action.2 In
response to the SEC’s concern about the quality of
audits, the Public Oversight Board (POB) issued a recommendation that audit firms should teach the concept
of professional skepticism more effectively.3 The implications are that professional skepticism is a learned skill
that can be enhanced with training rather than strictly
an innate quality.
Lending support to the SEC’s and POB’s concerns
about the skepticism among auditors, a 2004 fraud survey by the Association of Certified Fraud Examiners
(ACFE) revealed that only 11% of the frauds committed were detected by external auditors.4 The survey
shows it is far more likely that fraud will be uncovered
by employees of the organization rather than by the
external auditors. While internal auditors faired significantly better, detecting 24% of fraud cases, nearly 40%
were discovered through a tip. Of the tips that led to
the discovery of fraud, 60% came from company
employees. The importance of employees as a source of
fraud detection may be understated in these findings.
Another 16% of the tips came from anonymous hotlines, which are widely used by employees. The abundance of tips adds credibility to the Sarbanes-Oxley Act
(SOX) mandate that audit committees establish internal
reporting mechanisms such as hotlines.
TYPES
OF
F R AU D
AND
M A N A G E M E N T A C C O U N TA N T S
F R AU D D E T E C T I O N
Preventing fraud is a big responsibility for all levels of
financial management from staff accountant to CFO. As
financial professionals, the accounting staff is often
responsible for establishing cost-effective controls to
prevent fraudulent behavior. It is unlikely that all
frauds will be prevented with even the best internal
controls. Therefore, every organization should have the
goal of detecting fraud early in order to minimize its
financial impact.
Even though management accountants are not under
the same regulations as external auditors, they should
adopt an elevated attitude of skepticism to detect fraud
within their respective organizations. Management
accountants often have insights to details that may go
unnoticed or unaudited by external or internal auditors.
They certainly have intimate knowledge of financial
activities, the corporate environment, and employee
actions. This insider perspective can put them in a position to detect many symptoms of fraud that may not be
as obvious to an outsider, such as an employee who
never takes vacations or invoices that come from
unknown companies. This is particularly important given that the typical fraudster may not provide obvious,
discernable signs of fraud. The majority of white-collar
crimes are committed by middle-aged men who are
well educated, have been with the organization for several years, are in a position of trust, and have no criminal history. These individuals, however, exhibit
noticeable changes in their behavior at work.6 Manage-
THEIR COSTS
There are three general categories of fraud: asset misappropriation, corruption, and fraudulent financial statements. The majority of frauds (90% of reported cases)
are in asset misappropriations, which involve the theft
or misuse of an organization’s assets, such as skimming,
stealing inventory, and payroll fraud. Fraudulent financial statements make up the smallest percentage of
reported fraud cases (7.9%), but they represent the
highest median losses per case ($1,000,000) and are
more likely to be publicized.5
The cost of fraud to an organization is staggering.
The ACFE 2004 survey shows that the typical U.S.
organization loses 6% of its annual revenue to fraud.
Applying this statistic to the U.S. Gross Domestic Prod-
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comprehensive measure of this construct.10 Hurtt’s
skepticism scale draws from philosophy as well as
research in accounting and other disciplines. Her scale
is based on characteristics and behaviors that historically
have been associated with skepticism. It presumes professional skepticism is a multidimensional construct
composed of six individual characteristics falling within
three general categories: examining evidence, understanding evidence providers, and acting on evidence.
ment accountants would thus be in a better position to
recognize some of these behavioral signs than an outsider who has limited contact.
Because professional skepticism is the standard of
behavior for fraud detection, it may be beneficial to
understand how well management accountants utilize
professional skepticism. The purpose of this study is to
measure the professional skepticism of management
accountants and compare it to the skepticism levels of
internal and external auditors. This is the first study that
we are aware of that has objectively measured the skepticism levels of management accountants. By having a
better understanding of professional skepticism, the
management accounting profession can develop guidelines to implement it more effectively. We also look at
different demographic characteristics that may correlate
with higher levels of professional skepticism. Finally, we
draw from the literature to provide suggestions on how
organizations can increase the skeptical behaviors of
those who may be inherently less skeptical.
Examining Evidence
Hurtt’s scale is drawn from the theoretical development
of skepticism found in “Professional Skepticism: A
Model with Implications for Research, Practice, and
Education,” written by Hurtt, Martha Eining, and
David Plumlee (HEP).11 HEP argue that the three
characteristics of skepticism that deal with examining
evidence are a questioning mind, suspension of judgment, and a search for knowledge. A questioning mind
means skeptics are unlikely to accept information at
face value; instead, they require proof or justification.
Skeptics can see the other side of arguments and often
enjoy the role of “devil’s advocate.” It has also been
argued that skeptics suspend judgments in order to
make additional inquiry and obtain evidence. Suspension of judgment means skeptics are slower to form
judgments and not likely to jump to conclusions. Finally, a search for knowledge is equivalent to being generally curious. Skeptics are individuals who enjoy the
learning process and seek knowledge for knowledge’s
sake.
MEASURING SKEPTICISM
The concept of skepticism has been discussed by
philosophers throughout time. Despite all the concern
with skepticism in the accounting profession, however,
there is no universal way of measuring the construct.
Accounting literature defines skepticism in a variety of
ways. For example, Jeffrey J. McMillan and Richard A.
White suggest that an auditor that uses an error-based
explanation of questionable evidences (as opposed to
naturally occurring) is more skeptical.7 Skepticism has
also been defined by the outcomes it manifests: confronting a client or performing extra work.8 Other studies support the contention that skeptical behaviors can
be induced. Researchers found that auditors who were
told to stress professional skepticism were more apt to
increase their audit hours and perform a higher-quality
audit than those encouraged to be efficient or objective.9
The inconsistent measurement of skepticism has certainly hampered research efforts and the accounting profession’s ability to apply findings to practice.
Understanding Evidence Providers
This aspect of skepticism is also referred to as “interpersonal understanding,” and it involves an individual’s
interest in the motivations and integrity of the evidence
providers. HEP suggest a skeptic has the ability to recognize that different people will have different personal
views of the same event. Skepticism aids individuals to
see past the obvious to question the source of information even when a person appears completely trusting.
In public accounting, auditors are advised to be cautious regarding management assertions. The implication
is that managers are just looking out for their (or the
firm’s) best interests and will misrepresent the facts.
HURTT SKEPTICISM SCALE
Kathy Hurtt developed a skepticism scale to explicitly
measure an individual’s level of skepticism, providing a
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Figure 1:
The Hurtt Scale
Understanding Evidence Providers
◆ Interpersonal Understanding (0.883)
Examining Evidence
● I am interested in what causes people to behave
◆ Questioning Mind (0.638)*
the way that they do
● I often reject statements unless I have proof that
● Other people’s behavior doesn’t interest me*
they are true
● I like to understand the reason for other people’s
● My friends tell me that I often question things that
behavior
I see or hear
● I seldom consider why people behaving in a cer-
● I frequently question things that I see or hear
tain way*
● The actions people take and the reason for those
◆ Suspension of Judgment (0.832)
actions are fascinating
● I wait to decide on issues until I can get more
information
● I take my time when making decisions
Acting on Evidence
● I dislike having to make decisions quickly
◆ Self-confidence (0.933)
● I don’t like to decide until I’ve looked at all of the
● I feel good about myself
available information
● I am confident of my abilities
● I like to ensure that I’ve considered most available
● I am self-assured
information before making a decision
● I don’t feel sure of myself*
● I have confidence in myself
◆ Search for Knowledge (0.958)
● The prospect of learning excites me
◆ Self-determination (0.779)
● Discovering new information is fun
● I often accept other people’s explanations without
● I think that learning is exciting
further thought*
● I like searching for knowledge
● I tend to immediately accept what other people tell
● I enjoy trying to determine if what I read or hear is
me*
true
● I usually accept things I see, read, or hear at face
● I relish learning
value*
● I usually notice inconsistencies in explanations
● Most often I agree with what the others in my
group think*
● It is easy for other people to convince me*
* These questions were reverse coded.
With high levels of self-determination, a skeptic likely
will continue to collect information until satisfied that
there is sufficient information. Self-confidence and selfdetermination make the skeptic better able to value his
or her personal insights and have the courage to challenge the positions of others.
Hurtt’s scale, which uses these characteristics as the
basis to measure professional skepticism, consists of a
series of 30 questions designed to elicit respondents’
self-assessment of their skepticism characteristics (see
Figure 1). The scale has been exhaustively pilot tested
The truth may be that they simply see things differently. A skeptic understands the other point of view and
can investigate accordingly.
Acting on Evidence
The last portion of the skepticism scale focuses on personal initiative to act on information. HEP define the
characteristics in this section as self-confidence and
self-determination. By exhibiting higher levels of selfconfidence, a skeptic is more likely to take the initiative
to act on the information he or she finds questionable.
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and refined to arrive at its final state. It was also tested
and retested several weeks later to provide validation
for intrasubject test-retest reliability. Researchers using
the Hurtt scale have provided consistent evidence of its
robustness across internal auditors, external auditors,
and accounting students. The use of the skepticism
scale also has been validated in studies that link the
level of skepticism with expected behaviors associated
with skepticism. In this study, we focus our attention on
the professional skepticism levels among management
accountants.
were women. Respondents had an average of 19.4 years
of experience and an average age of 46.6. Twenty six of
the respondents were certified as a Certified Management Accountant (CMA®), Certified Public Accountant
(CPA), or both. Other demographic details can be seen
in Table 1.
R E S U LT S
Respondents answered the 30 skepticism scale questions shown in Figure 1 in random order using a sixpoint scale where one was “strongly disagree” and six
was “strongly agree.” The eight questions that are
reverse coded are adjusted accordingly. Factor analysis
was run on the 30 questions, and the individual loading
factors did not exactly correspond with the preidentified constructs that Hurtt defined. But Hurtt
indicates that the focus of the professional skepticism
model should be on the measure as a whole and that
the subscales are not necessarily designed to be used
independently. As such, the responses are then
summed to generate an overall skepticism score that
ranges from 30 (low skepticism) to 180 (high skepticism). In assessing the inter-item reliability of the 30question scale, our analysis provides a Cronbach’s alpha
score of 0.88. This indicates a high inter-item reliability
for the scale as a whole. In addition, Cronbach’s alpha is
T H E S T U DY
The Hurtt Skepticism Scale was administered to 59
members of the Institute of Management Accountants
(IMA®) in the southwestern United States. Participants
were directed to the survey website through a link on
their chapter website. The questionnaire was completed entirely online. This allowed respondents to maintain anonymity and enabled them to take the survey at
their convenience, ensuring they had adequate time to
respond to the questions.
Management accountants who participated in this
study held a wide variety of positions ranging from staff
accountant to CEO, with the majority in the controller
position (34%). Sixty-six percent of the respondents
Table 1:
Demographic Profile of Respondents
CONTINUOUS VARIABLES
Age (years)
Accounting Experience (years)
Gender
Marital Status
Children
Certification
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Mean
Std Dev
Min
Max
46.6
10.9
26
76
19.4
10.0
1
42
Level
N
%
Male
Female
20
39
33.9
66.1
Single
Married
Divorced
13
38
8
22.0
64.4
13.6
Yes
No
37
22
62.7
37.3
CMA
CPA
CMA & CPA
4
13
9
6.8
22.0
15.3
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greater than 0.70 for five of the six constructs, with two
constructs having scores greater than 0.90. These results
are similar to the results found for samples of internal
and external auditors, suggesting the scale is consistent
and reliable for use across the accounting profession.
Overall, the skepticism score for management accountants is 140.2, ranging from a low of 103 to a high of 172.
This score is significantly higher than that of business
students (132.7).12 The score is very similar to the aggregate score of internal auditors (140.3) and slightly above
the scores of external auditors (138.7) from other studies.
This suggests that the skepticism of management
accountants is similar to that of auditors—whether internal or external. Moreover, this study shows that while
others may conjecture that external and/or internal auditors have greater skepticism skills in detecting fraud or
questioning red flags, this clearly is not the case.
We also examined demographic characteristics to
determine whether they have any relationship (correlation) with levels of skepticism (see Table 2). For example, other researchers have found that, as a result of
having little exposure to fraud over time, auditors tend
to become less skeptical as they advance in their
careers.13 The results of our study find no relation
between experience and skepticism. The respondents
above and below the median experience levels had sim-
Table 2:
ilar skepticism scores (similar results were also found for
age). One interesting result, however, it that respondents with a CMA, CPA, or both have higher skepticism scores than those without certification. This result
is consistent with the study of internal auditors by
Cindy Durtschi and Rosemary Fullerton.14 We also
found that women scored higher than men, and respondents with children scored higher than those without
children. Single, unmarried individuals scored lower
than married or divorced respondents. While there is no
preconceived expectation that gender, children, or marital status would impact skepticism, these results indicate that life situations can alter the degree of
skepticism within individuals. Future research should
examine the relationship between demographic characteristics and skepticism to provide additional insights.
I M P L I C AT I O N S
The level of professional skepticism displayed by
employees likely will vary. Yet these differences do not
imply that employees who are less skeptical do not
have the potential to improve their abilities. While
researchers have found that higher levels of skepticism
are associated with individuals questioning data and collecting more evidence to support decisions, individuals
who score low on the skepticism scale can be trained to
exhibit behaviors consistent with those who score
higher.15
Understanding the differences in skepticism levels
can help firms in developing their training strategy.
Staff members who are less skeptical may need additional training at regular intervals to reinforce the types
of skills needed to detect fraud. Ongoing fraud training
may help employees identify risk factors and help them
become more sensitive to clues and red flags that suggest fraudulent behavior. Research shows that even
novices who receive practice and feedback with fraud
detection exhibit higher levels of skepticism and are
better able to detect fraud when it exists.16
Unlike auditors, who have a responsibility to explicitly consider fraud in every engagement, management
accountants have no similar requirement. It is important
to note, however, that increasing fraud awareness can
facilitate fraud detection. Accountants can be made
aware of fraudulent activities that are discovered within
Skepticism Results
OVERALL RESULTS
MEAN
Score
Range
Cronbach’s Alpha
140.2
103–172
0.88
DEMOGRAPHIC CHARACTERISTICS
Experience (above median)
Experience (below median)
139.4
140.1
Certified (CMA, CPA, or both)
Not Certified
142.6
137.5
Women
Men
140.4
137.5
With Children
Without Children
142.2
135.9
Married or Divorced
Single
141.0
135.1
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Kimberly F. Charron, Ph.D., CMA, is an associate professor
at the University of Nevada, Las Vegas. You can contact her
at (702) 895-3975 or kim.charron@unlv.edu.
the firm or in other firms through newsletters or other
forms of communication. Providing all employees with
the common signs of individuals who commit fraud can
help them identify potential fraud activities. Even subtle reminders at staff meetings or company-wide events
that emphasize the importance of having a skeptical
attitude may help deter fraud.
Another fraud prevention and detection strategy
organizations may want to consider is encouraging their
finance and accounting employees to earn a certification. Accountants who study for certification expand
their knowledge base, which in turn may make them
more cognizant of irregularities when they encounter
them and increase their levels of skepticism. Certification may also increase self-confidence, giving these
individuals more courage to question situations, transactions, or the behavior of colleagues.
In conclusion, research on professional skepticism
has been a difficult construct to administer and measure. With the Hurtt Skepticism Scale, however, an
objective measure of skepticism can be obtained. This
study is the first to examine the skepticism levels of
management accountants. While it offers some initial
findings and conclusions, future research should expand
on these results. For example, research should examine
whether management accountants who are identified as
being highly skeptical would also rate high in certain
behaviors such as information search, contradiction
detection, alternative generation, and expanded scrutiny of interpersonal information. That is, does a higher
level of skepticism among management accountants
lead to increased fraud detection? Are management
accountants who are more skeptical also more likely to
work slower than their counterparts? Finally, which
teaching and training methods have the most potential
for instilling an understanding of and ability to exhibit
appropriate levels of skepticism? ■
D. Jordan Lowe, Ph.D., is a professor at the School of
Global Management and Leadership at Arizona State University. You can contact him at jordan.lowe@asu.edu.
E N D N OT E S
1 American Institute of Certified Public Accountants (AICPA),
SAS No. 99, “Consideration of Fraud in a Financial Statement
Audit,” AICPA, New York, N.Y., 2002.
2 Mark S. Beasley, Joseph V. Carcello, and Dana R. Hermanson,
“Top 10 audit deficiencies,” Journal of Accountancy, April 2001,
pp. 63-66.
3 The Panel on Audit Effectiveness, Report and Recommendations,
Public Oversight Board (POB), Stamford, Conn., August 31,
2000.
4 Association of Certified Fraud Examiners (ACFE), 2004 Report
to the Nation on Occupational Fraud and Abuse, ACFE, 2004.
5 Ibid.
6 W. Steve Albrecht, Gerald W. Wernz, and Timothy L.
Williams, Fraud: Bringing Light to the Dark Side of Business,
McGraw Hill, New York, N.Y., 1995.
7 Jeffrey J. McMillan and Richard A. White, “Auditors’ Belief
Revisions and Evidence Search: The Effect of Hypothesis
Frame, Confirmation, and Professional Skepticism,” The
Accounting Review, July 1993, pp. 443-465.
8 Michael K. Shaub and Janice E. Lawrence, “Ethics, Experience and Professional Skepticism: A Situational Analysis,”
Behavioral Research in Accounting, Volume 8 Supplement, 1996,
pp. 124-157.
9 Audrey A. Gramling, “External Auditors’ Reliance on Work
Performed by Internal Auditors: The Influence of Fee Pressure on this Reliance Decision,” Auditing: A Journal of Practice
and Theory, Supplement 18, 1999, pp. 117-135.
10 Kathy Hurtt, “Development of an Instrument to Measure Professional Skepticism,” University of Wisconsin, working paper,
2003.
11 Kathy Hurtt, Martha Eining, and David Plumlee, “Professional Skepticism: A Model with Implications for Research, Practice, and Education,” University of Wisconsin, working paper,
2003.
12 Hurtt, “Development of an Instrument to Measure Professional Skepticism,” 2003.
13 Michael K. Shaub and Janice E. Lawrence, “Differences in
Auditors’ Professional Skepticism across Career Levels in the
Firm,” Advances in Accounting Behavioral Research, September
1999, pp. 61-83.
14 Cindy Durtschi and Rosemary Fullerton, “The Effects of Professional Skepticism on the Fraud Detection Skills of Internal
Auditors,” Utah State University, working paper, 2006.
15 Cindy Durtschi and Rosemary Fullerton, “Teaching Fraud
Detection Skills: A Problem-Based Learning Approach,”
Journal of Forensic Accounting, June 2005, pp. 187-212.
16 Tina Carpenter, Cindy Durtschi, and Lisa M. Gaynor, “The
Examination of the Short-Term and Long-Term Effects of
Fraud Training on Skepticism and Fraud Related Judgements,” Utah State University, working paper, 2008.
Data used in this study is available from the authors upon
request.
We wish to thank the Institute of Management Accountants
for their cooperation in obtaining participants for this
research study.
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