How We Consider Risk

I’ve been working on creating a second edition to the AICPA Risk Assessment Audit Guide, and it was in that context that I read Nicholos Kristoff’s column in today’s NYT.  The key point.

Evidence is accumulating that the human brain systematically misjudges certain kinds of risks. 

And then this.

Still, all is not lost, particularly if we understand and acknowledge our neurological shortcomings — and try to compensate with rational analysis. 

This is the point of performing risk assessment procedures.

The risk assessment standards are the “rational analysis” that we need to overcome our neurological shortcomings.  Seen in this context, I think auditors are preconditioned to assume SALY, and the RAS are designed to make us challenge that natural assumption.

To put it another way, the RAS should force us to examine with healthy professional skepticism this idea that nothing has changed since last year.

Kristoff’s column is good because it reminds us that we are hardwired to misjudge risks and awareness is the first step toward taking corrective action.

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