Professional Scepticism and Professional Judgment

1. Professional Scepticism and Professional Judgment Partner, Audit October 15, 2013

2. Agenda

3. Professional judgment Application of relevant training, knowledge and experience, in making informed decisions about the courses of action that are appropriate. Professional skepticism an attitude that includes a questioning mind, being alert to conditions which may indicate possible error or fraud, and a critical assessment of evidence. Professional Judgment and Skepticism

4. ENVIRONMENT Influences / Biases Coaching Coaching Reflect on Lessons Learned Reflect on Previous Experience 1 Clarify Issues and Objectives 2 3 Consider Alternatives 4 Gather and Evaluate Information 5 Reach Conclusion Articulate & Document Rationale Mindset Strategies for Avoiding Traps and Mitigating Bias Knowledge / Professional Standards The KPMG Professional Judgment Process Consultation

5. 1 Clarify Issues and Objectives 2 3 Consider Alternatives 4 Gather and Evaluate Information 5 Reach Conclusion Articulate & Document Rationale Critical Thinking Process What is being solved? How can we achieve our objectives? Sufficient appropriate evidence. After evaluating the information gathered and considering our objectives, we reach a conclusion. Highlights the equal importance to articulating and documenting the rationale to support the conclusion.

6. Can You Recall… What are the three judgment biases? • Confirmation bias • Overconfidence bias • Anchoring bias

7. Illustration 1 - Who do you listen to? GO TO INSERT--> HEADER & FOOTER TO EDIT THIS TEXT • A man who got hit by a car while at an ATM and sued the bank instead of the driver of the car. Why did he sue the bank? • Deep pockets • Easy target • Some people are just out looking for a payday • But are those all the facts?

8. Confirmation Bias Tendency to seek for and put more weight on information that is consistent with our initial beliefs of preferences.

9. Illustration 2 – What do we believe? GO TO INSERT--> HEADER & FOOTER TO EDIT THIS TEXT • 2006 Performance study of investment managers • 74% believed they are above average • 26% believe they are average • What’s wrong with this picture?

10. Overconfidence Bias Tendency for decision makers to overestimate their own abilities to perform task or to make accurate diagnoses or other judgments and decisions. http://www.youtube.com/watch?v=o4wv4RYFuE4&feature=player_detailpage

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12. Illustration 3 GO TO INSERT--> HEADER & FOOTER TO EDIT THIS TEXT Write down the number of citizens in the European Union? Is it less than, greater than or around 200 million?

13. Anchoring Bias Tendency to make assessments by starting from an initial numerical value and then to adjust insufficiently away from that initial value in forming a final judgment.

14. The Key to Mitigate the Impact of Biases… AWARENESS!!!! Add structure to your decision process Explore, before coming to conclusions Look for objective facts, test the guesses or at least highlight them Encourage participation Consider dissenting voices, alternative views Don’t be afraid to ask SILLY questions

15. ENVIRONMENT Influences / Biases Coaching Coaching Reflect on Lessons Learned Reflect on Previous Experience 1 Clarify Issues and Objectives 2 3 Consider Alternatives 4 Gather and Evaluate Information 5 Reach Conclusion Articulate & Document Rationale Mindset Strategies for Avoiding Traps and Mitigating Bias Knowledge / Professional Standards The KPMG Professional Judgment Process Consultation

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