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What Auditors Can Learn From the ‘Rolling Stone’ Reporting Fiasco

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Jun 11th 2015
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Late in 2014 and throughout this year, Rolling Stone magazine has made headline after headline over its now-retracted article about an alleged gang rape at the University of Virginia. The article itself immediately caught the attention of news outlets when it was published because of the horrible nature of the allegations. Soon, however, Rolling Stone and its handling of the piece became a major focus when the Washington Post and others began debunking major elements of the article.

University journalism schools along with multiple media outlets provided extensive post-mortem reviews of what went wrong in the reporting, writing, and editing process.

And while auditing and journalism are obviously two dramatically different fields, there are some similarities. The auditor's basic objective is to express an opinion on whether financial statements present a company's financial position, operations, and cash flows fairly and in line with US Generally Accepted Accounting Principles. One of the journalist's basic objectives is to make sure an article that is produced provides an accurate and balanced description of an event, situation, or person.

Essentially, both auditors and journalists have responsibility for making sure something is what it seems to be. Of course, one major difference is that the journalist has a direct role (on many levels) in producing the article, while an auditor is solely reviewing the financial statements management provided.

Still, some of the conclusions drawn from the investigation and repudiation of Rolling Stone's reporting and editing processes may hold some reminders for auditors. Here are three:

1. Certain basic skills and actions are table stakes. One of the broad criticisms of Rolling Stone was that important players in the article weren't contacted for their side of the story. Central tenets of journalism – such as checking with sources, asking difficult questions, and pushing or double-checking people when they try to evade answering questions – either weren't followed or weren't followed sufficiently.

In the same way, independent auditors and their organizations must exercise “due professional care” by covering the basic standards of fieldwork and reporting. For example, auditors must not only know how to perform audit sampling sufficient to obtain appropriate audit evidence, they must also actually perform the sampling.

2.Skepticism is supreme. As associate professor Barbara Gray of the City University of New York's Graduate School of Journalism said, one of the central problems with Rolling Stone's entire reporting, writing, fact-checking, editing, and publishing process was that each actor “shared a delusion of faith in their subject, and in each other.” The reporter believed the main subject of the story to be credible, so other checks and balances to guard against misinformation were omitted, and editors trusted the reporter so much they didn't push back enough. But, as Gray noted, “Journalism is not a faith-based institution.” Reporters' jobs require them to be skeptical, to dig into the evidence, and to corroborate facts.

Similarly, auditing is not a faith-based institution either, and professional skepticism is a requirement for the entire audit team. Auditing standards (AU-C Section 200.A26) describe the importance of professional skepticism this way:

“The auditor neither assumes that management is dishonest nor assumes unquestioned honesty. The auditor cannot be expected to disregard past experience of the honesty and integrity of the entity's management and those charged with governance. Nevertheless, a belief that management and those charged with governance are honest and have integrity does not relieve the auditor of the need to maintain professional skepticism or allow the auditor to be satisfied with less than persuasive audit evidence when obtaining reasonable assurance.”

AU-C Section 200.A29 adds this on the importance of teamwork as it relates to professional skepticism:

“Consultation on difficult or contentious matters during the course of the audit, both within the engagement team and between the engagement team and others at the appropriate level within or outside the firm ... assists the auditor in making informed and reasonable judgments.”

3. Analysis and critical thinking are critical. In journalism, reporters and editors are obligated to think independently, to try to be fair-minded and balanced, and to examine and analyze assumptions as they make inferences about their subject. Many people criticized the Rolling Stone editorial staff for failing to exercise critical thinking and analyze information as it conducted its reporting and self-checks.

Auditors, too, must analyze information and make comparisons to expected results. They do this using analytical procedures during planning, substantive tests, and review.

“A basic premise underlying the application of analytical procedures is that plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary,” AU-C Section 520.A6 states.

In other words, auditors must combine their knowledge of the business and the industry with their expertise in financial and nonfinancial data to make appropriate queries and to use critical thinking in their evaluations.

Business clients, shareholders, and lenders count on auditors to “get it right.” The public counts on reporters to get their stories right. For both professionals to fulfill their important roles of providing accountability, they must incorporate basic skills, skepticism, and analysis. By doing so, they remain effective and trustworthy watchdogs.

About the author:
Mary Ellen Biery is a research specialist at Sageworks, a financial information company that provides financial analysis and industry benchmarking solutions to accounting firms. She is a veteran financial reporter whose works have appeared in the Wall Street Journal and on Dow Jones Newswires, CNN.com, MarketWatch.com, CNBC.com, and other sites.

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