Singapore Standards of Auditing 200 (SSA) Summary

SSA 200 Summary

This SSA concerns the responsibilities and objectives of the external auditor when conducting an FS audit.

The purpose of an audit is to express an opinion on whether FS is presented fairly, in all material aspects, or give a true and fair view in accordance with the financial reporting framework. There is no need to provide assurance on viability of business, efficiency or effectiveness of business processes or effectiveness of internal controls.

The auditor needs to obtain reasonable assurance (high level) about whether the FS as a whole are free from material misstatement, whether due to fraud or error. Audit risk (function of risk of material misstatement and detection risk) should be reduced to an acceptably low level. This is the risk that auditor expresses an inappropriate opinion when the FS is materially misstated. Note that reasonable assurance is not absolute assurance.

The auditor needs to apply the concept of materiality (FS and assertion level for classes of transactions, account balances and disclosures). Auditor is not responsible for detection of misstatements which are not material to the FS.

The SSAs requires the auditor to identify and assess risks of material misstatement (ROMM), obtain sufficient and appropriate audit evidence and form opinion on the FS based on conclusion from audit evidence.

If reasonable assurance cannot be obtained, the auditor should disclaim an opinion or withdraw from the engagement.

The management and those charged with governance are responsible for preparing FS in accordance to financial reporting framework, appropriate internal controls over financial reporting, provide auditor with unrestricted access to information for the audit.

ROMM comprises of two components, the inherent risk component (higher for complex transactions and those requiring accounting estimates) and the control risk (cannot full eliminate ROMM due to inherent limitations such as human errors or mistakes or management override of controls) component.

As per SSA, the auditor needs to comply with relevant ethical requirements (ACRA code related to audit of FS and Integrity, Objectivity, professional competence and due care, confidentiality, professional behaviour), exercise professional scepticism (critical assessment of audit evidence, looking out for fraud risks, looking out for reliability of evidence) and professional judgment (materiality, extent of audit procedures, evaluating management judgments, drawing conclusions based on audit evidence) in planning and performing the audit.

Auditors have to comply with all SSAs that are relevant to the audit. If there is a failure to achieve an objective, there may be a need to modify the auditor’s opinion or withdraw from the engagement.

As part of preparing the FS, management may need to exercise judgment and make accounting estimates which are reasonable in the circumstances.

Management and those charged with governance have to acknowledge and understand a set of responsibilities for accepting the audit engagement.

The auditor must be independent both in mind and in appearance. This is to enhance the auditor’s ability to act with integrity and be objective and to maintain professional scepticism.

Refer to SSA 220 for quality assurance and partner review requirements.

Detection risk relates to the nature, timing and extent of the auditor’s procedures that are determined by the auditor to reduce audit risk to an acceptably low level.

Some of the inherent limitations of the audit include information that is withheld by the management and complicated fraud schemes which is difficult for auditor to detect. Auditor is also not trained to authenticate original documents. The audit must also be performed within a reasonable time and cost. However, despite these limitations, auditor should not accept less than persuasive evidence.  

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IIA Magazine Feb 2016 Issue

This is the 75th year of the anniversary of the IIA.

Capturing the Moment. Experts from around the globe provide a snapshot of the profession, discussing key issues impacting IA. In the past, IA was more focused on hindsight, it is now more about foresight too. Often, some IA staff may want to move to other departments. It is critical to find a clear path ahead for IA. Some of them might just want to stay in the profession forever. There has a clear shift from compliance to risk based audits. It is also good to volunteer for the profession. Combined assurance is also becoming more widely used. Students should try to contact the industries and ask for challenging assignments on IA. IA should set aside a portion of their paycheck every month to attend training etc. Work objectives should be clear and there must be clear communication. IA can also provide assurance on the management of strategy risks. IA can also add value to process effectiveness.

A Career on Point. There are many more women in this profession. IA has matured and many have viewed this function more positively now. To some, IA seems interesting and challenging. It is good as it helps you prepare for a leadership role.

Expanding the Foundation. Required audit competencies have changed considerably over the years, placing more and more emphasis on technology, business acumen and soft skills. IA is now a very respected profession. Effectiveness and efficiency are the hallmarks now. Information has increased over time and data analytics is being used more frequently nowadays. Soft skills and business acumen are very important too. Nowadays, it is good for IA to possess leadership capabilities and strategic thinking capabilities. There is a need for long-term adaptability, continuous learning etc.

Changing with the Profession. The IPPF has a history of adapting to meet stakeholder and member needs. They often listen to the needs of the profession. Now, the framework is more broad and flexible in its approach. The Standards are separated into attribute, performance and implementation types.

Twenty-first Century Milestones. Over the last 15 years, several watershed events helped define the practice of IA. IA is never dull. The first is flagrant financial reporting fraud, with cases like Enron etc. IA cannot ignore controls over financial reporting. The next is financial markets meltdown. The dotcom crash and the subprime crisis wreaked chaos throughout. ERM grew in stature as a result of all these meltdowns. The 3 lines of defence is all the more important in recent times. The next 2 big issues were cybersecurity and bribery and corruption.

The Perception of Value. A comparison of 2 IIA studies suggest internal audit may still have a long way to go in delivering stakeholder insight. Most IA are not meeting stakeholders’ expectations. Sometimes, there might be a lack of general management or operating insights within IA. Sometimes, IA also does not consult departments when developing audit plans.

Where We Are. Today’s IA enjoy greater stature within the organization and are working to meet ever-increasing expectations.

A Steady Progression. Audit professionals are in demand. IA needs to shape management’s expectations of them. IA should market themselves more. Cross-training and gaining exposure from other departments is the key. Auditors must be well-rounded and learn to take personal responsibility.

Conformance to the Standards. The top 10 non-conformance issues are: 1) Internal assessments; 2) reporting on the QAIP; 3) recognition of the definition of IA, code of ethics, standards in the IA charter; 4) external assessments; 5) QAIP; 6) requirements of the QAIP; 7) Engagement work program; 8) purpose, authority and responsibility; 9) co-ordination; 10) communication and approval

The ‘Anti-Fraud Moment’. Fighting fraud demands more than just awareness. There needs to be meaningful training when it comes to learning of skills. There is little training on red flag indicators. Create simple articles to share with employees. Record 5 minute training videos. Take advantage of live formal and informal skills training opportunities.

How Much Do Risks Really Change? The risk landscape shifts radically from 1 year to the next. It can changed a lot in 75 years. Global events can rock the market and commodity prices etc. Tech breakthroughs happen fast and world events disrupt things. Regulations change as well.

Internal Audit Fundamentals. The most basic skills remain largely unchanged. Critical thinking and communication are the key. Co-sourcing is an option when IA lacks certain technical skill sets.

Around the Globe. IA around the world are providing value to their organizations in a wide variety of ways and at different levels of complexity and sophistication. The role of IA may not be well-understood. Value demonstration is the key. Different auditors will be at different levels of proficiency and maturity.

Industry Roundup. The challenges IA face today are many and vary by sector. Public sector audit has moved beyond compliance or financial audits into performance auditing. There is also emphasis on effectiveness. There are sophisticated products in banking and safeguarding information is one of the key objectives. Money laundering is also a key area to watch. As for health care, there are issues like quality of service, compliance, data security are all big challenges.

A Different Perspective. IA’s business partners offer their views of the profession. Audit can identify opportunities for improvement throughout the organization. It is important to have a sharing environment. Technical skills matter a lot nowadays. IA should look at areas that management struggle with. IA should not hide or mask problems from management. Being able to understand IT etc would make IA more valuable.

Educating Auditors. Determining what IA students need to know now is a constant challenge. Being skilled in IA is a unique skill that is useful. It is possible to simulate real-world IA case studies for students. IA needs to be intellectually curious to learn more. One cannot speed up experience as time is required.

IA Future. IA allows one to understand the business. Do not miss the change to meet senior leaders.

‘I realized the role of IA aligned with many of my interests. I wanted to add value and bring a positive impact to a business while understanding how it operates, and IA presents opportunities not found in other roles within the company.’

IT Audit Trends and Foresight. Technology will continue to bring new risks for organizations. IA need to address the IOTs. We need to understand the inventory of devices and the type of data that is collected. One needs to understand the value of digital strategy.

The Changing Business World. Auditors can anticipate future developments by looking beyond their organization’s current business situation. Africa is going to grow fast in future. Businesses need to create space to think. IA needs to be able to anticipate new risks. IA can follow current affairs. Talk to customers to see how their needs are changing. IA is really looking to delight people.

Five Trends. Top global IA thinkers take a broad look at key issues that will shape the profession. The world is changing fast and risk are interdisciplinary. New risks must be understood and evaluated. IA can learn new ways of analysing and also develop strategic foresight. The compliance scope is continually expanding and making things more difficult. IA needs to link compliance activities to upstream processes and control improvements. It will be a challenge for lower the cost of compliance. Stakeholders are more demanding nowadays. IA must have knowledge of the various industries and any new business lines. Technology risk is getting more complicated. Data is becoming more prevalent and data analytics is getting more useful than ever before.

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IIA Magazine Apr 2016 issue

Soft skills seem to be lacking in some of the IA teams. There is the art of interviewing that must be executed properly. IA can set aside time to work with other parts of the business. Audit reports are not the only communication channel.

Time to Shift the Mindset. Pulse report urges IA to focus on culture and cybersecurity response. Board members should discuss with management to ensure that there is a common understanding. There is a risk of poor vendors and that firms could suffer from reputational damage. There needs to be strong third party risk practices.

Fraud Prevention. An effective control environment can deter or minimize the occurrence of fraudulent activities. Internal controls may not always be designed to prevent fraud. There must be a strong control environment for fraud prevention. Background checks and fraud related training can be useful indeed. Whistle-blowing hotlines can be set up. A certain level of anonymity must be ensured. No one person should complete control over a whole particular process, from start to end. Monitoring activities should take place on a frequent basis.

The Call no CAE wants to receive. A strong working relationship between IA and the CIO is essential to responding quickly to a cyber incident. This is important as cyber attacks can lead to reputational damage. One can verify the controls at the vendor and get them to fill up a data security risk assessment questionnaire. IA can be the trusted advisor that an organization needs.

Collaborative Risk Management. As organizations consolidate their risk processes, IA may not be able to continue to stand alone. Risk collaboration and organizing risks are more important nowadays. There is a need to be efficient about going about this. Risk needs to be organized neatly. ERM is one way to link everything together. Auditors should be open to other ideas on organizing and mitigating risk.

The Ticking Ethical Time Bomb. The financial loss from theft was secondary to the effect on company culture. Sometimes, the most obvious issue is no the more important one. Small frauds can lead to large ones. Reinforcing identity is also very smart sometimes, as it can help with ethical reinforcement. Increasing controls should not be done as a knee-jerk reaction sort of thing.

A Matter of Trust. Attention to detail and focused effort can help IA build the relationships required to be perceived as valued advisers. IA should be given time to innovate, gain an understanding of evolving challenges and talk to people in the business regularly about the issues they face. You help to build trust if you know what the regulators or other people are doing. Sometimes, top management might even tell CAE the problems that are upcoming. Relationship building and being part of the management team is crucial. However, there is still a need to be independent even if IA is like a trusted advisor. Try to leverage on technology.

‘IA can often be forgotten if it is not part of the core team, because it is less visible than those functions that meet and talk regularly.’

‘Auditors are there to make organizations better – it is a key part of the way they can add value. Not commenting when they see a better way to do something could show a certain lack of moral courage.’

Proactive Fraud Analysis. Integrating advanced forensic data analytics capabilities can help auditors mitigate fraud risks and demonstrate returns. IA can invest in such tools as it can help in the monitoring of risk. IA should ask ‘What are the high risk accounts?’; ‘When?’; ‘Where?’ etc. IA should focus on the low-hanging fruit first. The first project undertaken should be easy. Learn to go beyond the descriptive analytics. Learn to embrace both structured and unstructured data. Communication is the key. It would be good to automate the tests and involve the end-users. Also, learn to set a realistic timetable. Keep analytics simple and intuitive – don’t include too much information in one report so it isn’t easy to understand.

Getting More from Interviews. Instead of emphasizing formalities, IA should approach each interview like a conversation. You can gain insight into the way operations work and identify gaps etc. Plan your questions beforehand and be prepared. However, the less formal it is, the more information you can find out from the interview. Try to make it a conversation. Learning about the auditees’ life can help to build rapport and build the bond. Talk to others within the auditees’ same department. The interview’s purpose should be specific, attainable and outcome oriented. Preparing for the interview helps a lot. The location matters as well. Try to open in a way that makes the auditee at ease. Try to explain the purpose and the outcome of the interview. Learn to practise effective listening. One can ask thought provoking questions that will help to elicit information. Learn to practise active listening and show positive body language such as being attentive. You can prepare questions but there is no need to follow to a list strictly. It can be difficult to build rapport. Do not try to tell the interviewee that the interview must be done to complete the audit. Have lunch with auditees once in a while. People love to hear about themselves.

‘Auditors should be curious about the way processes work, the way the organization works, and perhaps most importantly, the people who make it work. Curiosity will lead to a better understanding of the organization, better ideas for improving the organization, and a better rapport with the individuals within the organization.’

On the Hunt for Payroll Fraud. Taking a close look at payroll risks can enable IA to help their organizations save money and identify wrongdoing. Payroll fraud is more common if there is irregular workforce patterns. Payroll is usually shrouded in secrecy. Overpayment is more common than underpayment. IA can also examine to seek actual cost savings/ productivity gains. IA can adopt a helicopter overview of payroll data and the payroll process. One can compare payroll costs with other organizations. Rosters should be designed to optimize the allocation of employees to operational needs. Management welcomes findings that reveal specific wrongdoing because they provide hard-to-dispute evidence. IA can look out for certain insights and then drill further. There are many common findings. The audit fieldwork needs to be well-researched and planned.

Guardians of Integrity. IA can provide insight into corporate identity and people-related risks. For instance, IA can evaluate the ethics and organizational integrity. IA must communicate with the board and management and be the corporate conscience. Testing the effectiveness of the ethics programs can be tough. It is important to understand how an organization defines success. It is important to uphold the code of ethics: integrity; objectivity; confidentiality; competence. IA should examine incident reports too. IA must be as wise as the board, as savvy as management, and as shrews as attorneys. Stakeholder surveys could be used to understand the management and employee ethics. IIA needs to exercise fair and ethical decision making.

Internal-Audit

audit financial company tax investigation process business accounting

IIA Magazine Aug 2017 issue

The Technology Issue

 A technology revolution. Tech is moving at a fast pace and some businesses may not be able to reap the benefits. IA needs to understand the evolving risk landscape related to the business. Tech will continue to disrupt the landscape and IA needs to reassess what data means to them going forward. Auditors help organizations avoid getting into trouble by identifying issues early and avoid them being surfaced by regulators or the media.

The Cyber Readiness Gap. Organizations may not be prepared for the attacks they are expecting. Ransomware is a big issue and thinks will get worse. Only half the organizations surveyed have a plan to address ransomware attacks. IA can help to scrutinize cybersecurity practices and plans. IT security governance needs to include the human factor in corporate risk analysis and assessment. IA can move from a supportive to front-seat role when building crisis-resilient culture.

More than Compliance with ‘A’. Transforming a compliance program into a value-adding activity starts with IA. Compliance with AML regulations are important. However, many managers do not see value in compliance work. IA needs to ensure compliance can provide real assurance. It is important to do the right thing and do things correctly. Ask yourself why there is a compliance requirement in the first place. IA needs to work with the first and second line of defence to ensure all risks are being addressed. IA should also question the need for, existence of, and adequacy of compliance with A. Sometimes, the original risks may not be present and hence the compliance requirement should not be relevant. One needs to examine the adequacy and effectiveness of the mitigating control. The audit needs to maximize the use of resources and analytics. One can use trend analysis to understand whether risk is increasing or decreasing. Effectiveness of controls can be tested with analytics.

‘But it should not be compliance simply for compliance sake. Internal audit should consider the overarching business objective and the controls that help mitigate risk to the achievement of the objective – even when examining compliance-related controls.’

Stop Clicking, Start Coding. SQL queries can enable internal auditors to uncover greater insights from organizational data. Data needs to be analysed etc. Some auditors are required to learn SQL. It is a language for managing data held in databases. To be good, logical thinking and reasoning are important and necessary for coding. SQL can be tailored for auditing needs and for ad-hoc queries. SQL and other audit software can form a powerful set of analytical tools.

Internal Audit needs risk management too. Managing its own risks can improve the audit function’s performance and demonstrate that it practices what it preaches. One key risk of IA is whether the department is strategically positioned within the organization its objectives. Other risks are whether the department has enough staff, on assurance etc. Reputation risks are important too, and so is compliance risks. Operational risks are like the resourcing problems, annual audit plan etc. If audits are behind schedule by about a month, it needs to be highlighted as a red flag. IA can also do a risk control self-assessment to evaluate internal controls in place.

The Cashier Cash Thief. Mounting family pressures and opportunity cause a trusted warranty clerk to pocket payments from customers. IA must emphasize the importance of SOD and monitor any exceptions. Trend analysis would allow organization to detect fraud more timely. Routine audits are vital for all cash processes. Mandatory vacations and rotation of duties should have prevented fraud from happening.

In Safe Hands. Organizations must grapple with a host of issues when determining how to best protect their data and manage the way it’s used. In Europe, there is a General Data Protection Regulation that goes into effect in spring 2018. It is a stricter regulation than ever before. Firms need to obtain consent for data collected from individuals. IA needs to go back to the drawing board to strike a balance. Respecting someone’s privacy rights is actually a soft skill and needs a soft approach. Privacy controls need to be engineered into business processes. Businesses must be clear about what they need the data for. Many companies do not know where their data comes from and how it is used. IA can be a role model in innovation etc.

Great tech expectations. As technology becomes more integrated with business processes, auditors must raise their IT skills. New auditors usually have better skills than older ones. People with expertise in IT will be in demand. Those with experience in DA will have an advantage over those who don’t. Experience with audit-specific software is also a plus. Auditors need to have an understanding of the infrastructure and applications being used. New authors are not usually well versed in soft skills. IA needs to have a good understanding of flow, controls and governance. Determine the specialty skills needed. Maintaining the right mix of generalists and specialists is a key IT challenge. IA needs to have a training plan for the IT risk and controls. Training hours need to be tracked and there needs to be information sharing at every meeting.

Building a data analytics program. Six strategies can facilitate progress when starting or furthering an analytics program. Many functions suffer from pitfalls/ setbacks. The six strategies are (1) create awareness rather than a silo; (2) understand the data before investing in a tool; (3) plan sufficiently; (4) think big picture; (5) Partner with IT; (6) Take advantage of visualization tools for inspired reporting.

#PurposeServiceImpact. The IIA’s 2017-2018 Global Chairman of the Board J Michael Peppers encourages IA to unify around the three concepts in his powerful hashtag. Purpose, Service and Impact are important words for our profession. It is about the why we do things. We should help enhance shareholder value through our work. Service is basically walking the talk. It is important to establish credibility with clients. We are both change agents and educators and need to do the right thing. Volunteering is important and internal auditors should strive to give back to the society. Always try to make a positive difference. We need to understand the purpose of the organization.

‘The best and most successful internal auditors I know understand that internal auditing is more than just a job: it is a sincere effort to improve the lot of others, whether organizations or individuals.’

The Root of the Matter. Performing root-cause analysis requires that auditors recognize common myths associated with the process. Addressing root cause will prevent the issue from recurring. Complex problems may be due a variety of factors. There may not be a single root cause at times. Use the 5 Why techniques. Sometimes, two root causes can lead to one problem. Some brainstorming is required to address all the root causes. One can use the fishbone diagram and identify problems in different categories like: Man, Machine, Measurements, Method, Materials, and Mother Nature. One can also use scatter diagrams to pair cause and effect and look for relationships. Good recommendations in the audit report should address the root causes of a problem. However, IA should understand that RCA requires time and resources and the organization must weigh the pros and cons of doing it.

Seven Steps to Transformation. IA can assist management throughout the many stages of business change. The first is pre-implementation review. It helps management to identify problems at the planning stage. Ask yourself what is the best ERP project model for ERP packages? The other steps are process/controls analysis, In-flight reviews, IT and User Acceptance Testing and Output/Results testing. The last 2 steps are post-implementation reviews and comparison to project management reviews.

It’s only one word. Excessive audit report wordsmithing is often a disservice to the client – and the audit function. Let those who did the work have a say in the changes. Never make a change unless you can explain why that change is necessary. Otherwise, you are just changing for personal preference. Always explain the reasons for any change to the person who wrote the original drafts. Do not be too anal about phrasing as this will result in rewriting and delays and frustrations.

‘Far too often, the lead, manager, chief audit executive doesn’t like what is written and starts editing the audit report. The process often results in a report the auditor no longer recognizes and, in the worst situations, it says something the auditor never intended it to say.’

The Data Analytics Strategy. Adding analytics to the audit methodology requires careful change management. Funding and resources needs to be provided. Integrate data analytics requirements into the audit methodology. Look for quick wins if possible. Use a champion to lead the strategy. CAE must emphasize that analytics is good as it improves audit efficiency. Analytics can add value not just to fieldwork, but also risk assessment and planning. Data is also evidence and that’s what sells well.

From ratings to Recommendations. Behavioural psychology suggests internal auditors’ approach could benefit from more carrot and less stick. Audit gradings are hated by auditees as it sends a signal that they did something wrong and that things are really bad. The SDT (self-determination theory) shows that human motivation is optimized when the following 3 are present: developing one’s skills (competency); exercising free will (autonomy); feeling connected with others (relatedness). Give your auditee the chance by sharing about common goals and building good relationships with them.

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The Art of the Good Life: 52 Surprising Shortcuts to Happiness, Wealth and Success by Rolf Dobelli (Part 4)

Managing Expectations (The Less You Expect, the Happier You’ll Be). Our brains are an expectation machine. Expectations are built without us knowing as well, on a subconscious level. Do not have excessively high expectations of certain events. If your expectations regarding income rise faster than your income, you will be disappointed. Besides feeding yourself, you don’t have to do anything else. There are very few true necessities in life. Learn to erase supposed ‘necessities’ from your life. It is good to have desires, but do not be shackled by them. Not all your desires will be fulfilled. Your preferences are sometimes out of your control. Try not to have expectations of others, as they are beyond your control. To live a good life, draw distinctions between necessities, desires and expectations. You need to keep them separate. Managing your expectations is part of a good life.

Research confirms that expectations have a profound impact on happiness, and that unrealistic expectations are among the most effective killjoys. – Rolf Dobelli

Sturgeon’s Law (How to Tune your bullshit detector). Sturgeon’s Law states that 90% of everything is crap, regardless of what field you are in. To re-phrase, 90% of intellectual things are bullshit. Knowing this is good, as you can filter what you see, hear or read without feeling guilty. Concentrate on being selective in your absorption of content. In life, you will come across a lot of trash, but you need to be able to tune those out. It is easier said than done. Recognize the difference between ideas and good ideas. If you’re not sure whether something is bullshit, it’s bullshit.

In Praise of Modesty (The Less Self-Important You Are, the Better Your Life will be). Even great people will be forgotten in 4 generations or so. The problem with humans are that we are too attached to a sense of self-esteem. Our ego is too big. To live a good life, avoid being too full of yourself. Avoid standing upon your ego too much. Focus on your work and do not brag. The self-serving bias afflicts those who have a big ego in life. They may also over-estimate their abilities in life.

In a hundred or two hundred years at the most, hardly anybody will know who Bill Gates, Donald Trump or Angela Merkel were. And as for the two of us – you, dear reader, and me – a few decades after we’re gone nobody will spare us a second thought. – Rolf Dobelli

Inner Success (Why Your Input is more important than your output). Magazines sometimes produce a list of the most successful and powerful people in the world. Modern societies highlight material success a lot. Why are there no lists for people who are the most satisfied? Definitions of success depends on the product of their time. Don’t follow others blindly. Material success is 100% a matter of chance. True success is inner success. Once you have achieved tranquillity of the soul, you will be able to put up with slings and arrows. You can control your input, but not your output. Inner success is more stable than external success. Take stock of your accomplishments at the end of each day. People desire external gain as it gives them internal gain.

Success is a peace of mind, which is a direct result of self-satisfaction in knowing you made the effort to do your best to become the best that you are capable of becoming. – John Wooden

Afterword. The good life is no easy task. Instead of relying on intuition, one should be aware of the biases/heuristics that the mind is susceptible to. Intellectual tools are more important than money. If your friend is not leading a good life, you will know it instantly. This book has provided insights on Stoicism. Throughout this book, I have quoted Charlie Munger and Warren Buffett. This book combines the principles of modern psychology, Stoicism and the philosophy of value investing.

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The Art of the Good Life: 52 Surprising Shortcuts to Happiness, Wealth and Success by Rolf Dobelli (Part 3)

The Book of Worries (How to Switch off the Loudspeaker in Your Head). Everyone has to have the right setting on anxiety. That’s the way humans were wired, to be slightly anxious and wary of our surroundings. In the past, anxiety was useful as it ensured the survival of humans. But in modern day, such anxiety is unproductive. Anxiety will simply affect your sleep quality. Excessive anxiety will lead to stress. Fear is enough. There isn’t a switch to turn off the loudspeaker in your head. One trick is to write down your anxieties in a book at a fixed time everyday. Think about the worst possible consequences. Take out insurance. Focused work can definitely help against brooding as it very fulfilling in nature.

Determine what you can influence and what you can’t. Address the former. Don’t let the latter prey on your mind. – Rolf Dobelli

The Opinion Volcano (Why you’re Better Off Without Opinions). Difficult questions require thought and not simply muttering an opinion. The human brain is a volcano of opinions. We express opinions on topics which do not interest us. It would be better for you to shut up. We think we know answers on unanswerable questions. We give over-hasty answers to complex questions. The trick is to not keep on feeling that you need to give an opinion. Select the topics of your interest carefully. Writing is the ideal way to organize your thoughts. Question your own opinion to see if it can stand up to scrutiny.

Your Mental Fortress (The Wheel of Fortune). One needs to accept the existence of fate. Everything can be turned on their head all of a sudden. Everything you own, value and love is ephemeral. These things are fleeting and temporary. Thirdly, understand that the positive outweighed the negative in your life and that all sweet things are tinged with bitterness. However, no one can take your thoughts and your mental tools. These are the principles of stoicism. Happiness can only found in your mental strength and resolve, not in a Porsche collection.

Envy (Mirror, Mirror, on the Wall). Envy is one of the most toxic emotions. It has many destructive powers. Envy is one of the most important sources of unhappiness. Envy is an animal instinct. The trick is to stay clear of comparisons in order to enjoy a good life. Social media also contains information about others. Do not be envious of the neighbour’s car as car is unlikely to be able to bring someone happiness.

This is the interesting thing about envy: the more we compare ourselves with others, the greater the danger of jealousy. – Rolf Dobelli

The images uploaded have nothing to do with your friends’ normal lives. They’ve been meticulously curated, giving the fake impression that others in your social circle are doing better than they really are. – Rolf Dobelli

Prevention (Avoid Problems Before You Have to Solve Them). What is wisdom? It is a practical ability which we need to navigate life. Avoidance isn’t sexy. Successes achieved through prevention are invisible to others. The financial press loves a good turnaround manager. Hence, we underemphasize the role of some people in society. It is better to steer clear of danger because of your wisdom of foresight.

Mental Relief Work (Why You’re Not Responsible for the State of the World). Sometimes, we hear about the injustices in the world. However, there is nothing we can do about them personally. Most catastrophes are more complex than they seem to be. Don’t overestimate your ability. If you want to help reduce suffering on the planet, donate money. Voluntary work using your time is largely unproductive and you would be better off investing in your circle of competence. It would be smarter to pay and let the professionals do the work. Drastically restrict your news consumption – especially when it comes to catastrophes. Evil is all around us, and some things are hard to prevent. You’re not responsible for the state for the world.

The Focus Trap (How to Manage Your Most Important Resource). Focus is important, but you need to know where to direct it. The problem is that in modern society we are distracted by many notifications etc. Focus is an important resource. Don’t confuse what is new with what’s relevant. Avoid content or technology that’s free. Avoid absorbing information from multimedia as books are less distracting. Act from a position of strength. Focus can affect your happiness directly too.

If you deliberately focus your attention, you’ll get more out of life. Be critical, strict and careful when it comes to your intake of information – no less critical, strict and careful than you are with your food or medication. – Rolf Dobelli

Read Less, but Twice – On Principle (We’re Reading Wrong). Get through life via 50 books that you have read. I can faintly recall the content of books I have read. Little of the books you have read, you can remember. What’s the point of reading a book if you can’t remember the content? Why do humans retain so little of what we read? The problem is that we are not selective or thorough enough. Now, I am more selective with my reading and sometimes even read the same book twice. When young, read widely and do not restrict yourself. This is the stage where you are improving your powers of judgment. After you are 30, be very selective about what you read.

The effect of reading twice isn’t twice the effect of reading once. It’s much greater – judging by my own experience, I’d put it at a factor of ten. – Rolf Dobelli

The Dogma Trap (Why Ideologues Oversimplify Things). Humans think we know things very well until we are forced to explain them. This is the knowledge illusion. Special issues require a lot of thought. We need to account for the effects of the effects of doing something. Ideologies are very dangerous. Notice when you are falling for an ideology. An ideology is one which can seemingly explain everything. Remember to give dogmas a wide berth.

Mental Subtraction (How to Realize that You’re Happy). How generally happy are you with your life? Gratitude is an important feeling which you need to be appreciative of. Gratitude might not work because of habituation and we get used to things. Instead of focusing on the positives, mental subtraction works too. It can help to boost happiness. Think about how much you’d miss the things you do have if you didn’t have them any longer.

Our happiness is sometimes not very salient. We need to do what we can to make it more so. Imagine playing a piano and not being able to hear what it sounds like. Many activities in life are like playing a piano that you do not hear. – Rolf Dobelli

The Point of Maximum Deliberation (Thinking Is to Acting Like a Torch is to a Floodlight). The best ideas come to you while you write them down. Action speaks louder than words. Doing beats talking anytime. The world is opaque to us. To go beyond what we know, we have to forge ahead and act. This is the point of maximum deliberation. This is when all the facts are laid on the table and you have digested them. Meditation won’t help you anymore, if there are no more new acts. Stranded on an island, who would you rather be by your side? Your partner? A Consultant? A boatbuilder? You won’t achieve the good life simply by thinking about things you ought to do. Self-inquiry will get you bogged down in moodiness, vague thoughts etc.

An entrepreneur won’t know whether a product will be successful until she produces it and launches it onto the market – no matter how much consumer research she’s done. – Rolf Dobelli

If you’re simply thinking something over, you’ll never bump up against reality, which means you can never fail. Act, however, and suddenly failure is back on the cards – but you’ll gain new experiences. – Rolf Dobelli

Other People’s Shoes (Role Reversal). Sometimes, it helps to take the place of someone else. The issue might be resolved more quickly. You got to see things from someone’s else perspective. Role reversal is a quick way to build mutual understanding. Reading novels can help you to build empathy fast.

Being immersed in a good novel, accompanying the protagonist throughout both highs and lows, is an efficient workaround that sits somewhere between thinking and doing. – Rolf Dobelli

The Illusion of Changing the World (Part 1 – Don’t Fall for the “Great Men” Theory). Can you really change the world? Modern society are very optimistic for the individual. We see ourselves as engineers of the world. However, the idea that any individual can change the world is a grand illusion. The first problem is the focusing illusion. We over-estimate the importance of our projects. The next bias is the intentional stance such as ‘without Einstein, there would be no relativity theory’. However, without such great people, things would have happened, just with someone else at the helm. Individual humans do not shape history, but there are a myriad of factors driving it. Do not cling on to the illusion, that you can be a great man yourself.

The Illusion of Changing the World (part 2 – Why you shouldn’t put anyone on a pedestal – least of all yourself). Other inventors, if Edison wasn’t around, would have invented the light bulb. Hence, the light bulb would still have been invented. Technology will find its inventors, not vice versa. Even without Steve Jobs or Bill Gates, things would not have changed much. Even outstanding CEOs can’t control market forces. A lot of them are forgotten people already. Hence, we need to be modest about our own achievements.

No matter how extraordinary your accomplishments might be, the truth is that they would have happened you. Your personal impact on the world is minute. It doesn’t matter how brilliant you are. – Rolf Dobelli

The only place where you can really make a difference is in your own life. Focus on your own surroundings. You’ll soon see that getting to grips with that is ambitious enough. Why take it upon yourself to change the world? Spare yourself the disappointment. – Rolf Dobelli

The ‘Just World’ Fallacy (Why Our Lives Aren’t Like Classic Crime). We believe in justice and equality and cannot bear injustice. We believe good deeds will be rewarded and bad deeds will be punished. We need to accept the unfairness of the world. In life, we have to put up with a bit of unfairness. Humans like to think everything will turn out fine. The world is fundamentally amoral. Part of the good life is to accept that not everything is fine.

The things that happen to you across the course of your life, especially the more serious blows of fate, have little to do with whether you’re a good or a bad person. So accept unhappiness and misfortune with stoicism and calm. – Rolf Dobelli

Cargo Cults (Don’t Build Planes out of Straw). Many people try to emulate their idol’s behavior or mannerisms, but they can’t achieve the same success. Auditors like to tick boxes, but are so good at identifying risks. Avoid companies that reward ceremony over achievement. Learn to understand what truly made people successful first.

Star far away from any type of cargo cult. And be on your guard: the substanceless imitation of form is more common than we think. – Rolf Dobelli

If You Run Your Own Race, You Can’t Lose (Why General Knowledge is Only Useful as a Hobby). You can recite facts about your own area of expertise. However, what do you know outside your expertise? The more you fill your brain with specialized knowledge, the less you will have for general knowledge. We see ourselves as versatile specialists. Our general knowledge gets affected by this. Our ancestors were better at more things, because they didn’t specialize. Now, society only rewards the specialists. If you are not the best in your field, you will have to specialize further. It is okay to have some general knowledge, but you won’t make a career out of it and do not spend excessive amount of time on it.

The Arms Race (Why You Should Avoid the Field of Battle). Students are trapped in a paper race, because others have degrees too. However, taking into account the education cost, they are barely better off than those without degrees. If you are in an arms race, get out if you can. Find a niche where there is no competition. Find a niche where you can operate smoothly and confidently. Humans are pressured to do many things in modern society. If you want a career as a musician, avoid the piano and the violin as there is too much competition in the area. Steer clear of arms race.

Making Friends with Weirdos (Get to know Outsiders but Don’t be one Yourself). People who do not belong in groups can be very successful too, like Einstein. Many of these people can be termed as outsiders. They enjoy an advantage as they don’t have protocols to slow them down. They also look more deeply and learn to question the status quo more. There is an appeal to being one. However, do not be one. Only the brightest outsiders can succeed. Your best chance is not to leave the establishment. Make friends with outsiders and be interested in their work. Practice reciprocity and tolerance. Surround yourself with smart people and outsiders as they might give you a fresh perspective on things and life.

The Secretary Problem (Why Our Sample Sizes are too Small). If you have 100 people to interview for the secretary position, how would you go about it? Take the first good candidate? Or interview many and then assess the feel of the quality of the pool? Statistically, one should interview the first 37 candidates and reject them all; however, you should monitor their quality. Then you should continue interviewing until you find someone better than the previous 37 and then hire her. Although it may not be directly applicable to real life, it can give you guidelines about how long we should be spending time testing things before making a final decision. Try out different options in life first. Understand what are the different options out there. We tend to make decisions too soon and too hasty. Sometimes, our sample size are too small. The trick is to take as many samples as you while you are still young. Be receptive and learn.

Read widely, because novels and short stories are excellent simulations of life. Only as you age should you adapt your modus operandi and become highly selective. By then you’ll know what you like and what you don’t. – Rolf Dobelli

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The Art of the Good Life: 52 Surprising Shortcuts to Happiness, Wealth and Success by Rolf Dobelli (Part 2)

The Circle of Competence (Why It’s Important to Know Your Limits). In the circle are the skills you have mastered. Know your circle of competence and stick within it. Focus on your circle of competence in your career. You should not do things outside the circle of your competence. One often feels tempted to broaden your area of competence, but you shouldn’t do it. To master something, a lot of time will be required. It also involves a certain level of obsession. Be realistic and know that you suck at certain things in life. One outstanding skill can trump many mediocre ones.

The Secret of Persistence (Why Bores Are More Successful than Adventurers). Classy investors buy a handful of companies and they keep them. To avoid transaction costs, they buy and sell as infrequently as possible. They take advantage of a long term horizon. Longevity has its benefits as there are many old books which are still bestsellers even today. Our brains do not have instinct for duration. Long term successes are important. One can be more productive in a peaceful environment. Stick to your circle of competence for as long as possible once you have a rewarding hobby. Perseverance and tenacity are highly valuable virtues.

The Tyranny of a Calling (Do What You Can, Not What You Wish You Could). How can find your calling? People believe there is a bud waiting to be formed inside of you. However, the problem will callings are that they are illusions. A calling that makes you happy is false. Don’t go blindly chasing your ambitious goals and feel depressed if you don’t achieve them. We often only see cases of selection bias, where we see people with a calling being successful. Build on the skills you have. The skills you have mastered are the things you enjoy doing most of the time. Other people have got to value your talents.

You can pursue a craft with love, of course, and even with a touch of obsession, but your focus should always be on the activity, the work, the input – not on the success, the result, the output. – Rolf Dobelli

The Prison of a Good Reputation (How to Shift from External to Internal Validation). Bob Dylan didn’t acknowledge his Nobel Prize in Literature in 2016. Grigori Perelman declined the Fields Medal for Mathematics. He is indifferent to what the world thinks of him. As you grow older, you feel that public perception has little to do with the quality of your work. This is the difference between someone with an inner vs outer scorecard. In the past, people were more concerned about their outer scorecard and what others thought of them. Humans spend 90% of the time talking about other people. However, in modern day, what others think of it is far less important. People are approval seeking machines on social media. People are going to comment on whatever please them. Don’t simply crave recognition but rather focus on achieving something.

Would you rather be the world’s greatest lover, but have everyone think you’re the world’s worst lover? Or would you rather be the world’s worst lover but have everyone think you’re the world’s greatest lover? – Warren Buffett

People will gossip and tittle-tattle behind your back. They’ll heap you with praise and drag you into shitstorms. You can’t control it. – Rolf Dobelli

The ‘End of History’ Illusion (You Can Change Yourself – but Not Other People). How much have you changed over the last 10 years? In terms of personality, character, temperament, values etc. When asked, most people feel that they won’t change a lot in the next 10 to 20 years. However, it isn’t true that personalities stop developing over time. The good news is that adults can exercise some influence over changes in your personality. Use your idols and be careful of the people you want to admire. The bad news is that you can’t change other people, not even your partner. Motivation has to come from within. One of the key rules of a good life is to ‘Avoid situations in which you have to change other people.’ Do not hire someone where you have to change their character. Skills can be trained, but attitudes can’t be changed easily.

Oh, it’s just so useful dealing with people you can trust and getting all the others the hell out of your life… But wise people want to avoid other people who are just total rat poison, and there are a lot of them. – Charlie Munger

The Smaller Meaning of Life (Which Goals You Can Achieve – and Which You Can’t). Our lives consist of many facets. It is very difficult to answer the question of ‘Who you are’. You should ask about what your purpose in life is. Stop trying to look for the larger meaning of life. However, you should ask yourself about the smaller meaning of life, your goals, ambitions, mission etc. Life goals are very important and it is important to set a few. Goals are useful because they put you in the mood for accomplishing them. Goals make decision-making easier. Life consists of making forks in the road. Goals need to be realistic though.

There is no discernable overarching purpose – not for humanity, life or the universe. The world is fundamentally meaningless. So stop looking for the “larger meaning of life”. You’re only wasting your time. – Rolf Dobelli

Your Two Selves (Why Your Life Isn’t a Photo Album). You have two selfs, the experiencing self and the remembering self. A human can hardly recall moments in the past. We can’t retain our experiences well. The remembering self has better retention and perhaps you can remember the awesome praline that you ate 24 hours ago. The experiencing self is only concerned with a 3 second interval. Our two selves often give contrasting replies. The remembering self tends to recall happy memories as compared to the experiencing self. Humans suffer from duration neglect. The problem of this that our remembering selves tend to value short-term fun more than long term ones. We need to rely on both selves and cannot simply ignore either one.

Humans remember most clearly the peak of an episode, ie., the moment of greatest intensity, and the end. Hardly anything else filters through into our memories. – Rolf Dobelli

Not even duration matters. Whether you’re on holiday for one week or three, your memory of it will be roughly the same. Likewise, whether you’re in prison for a month or a year, it makes no difference to your memory – the specific amount of time spent behind bars will be forgotten. – Rolf Dobelli

The Memory Bank. How much are you willing to pay for an ideal experience? Imagine what would be your most wonderful experience and jot down a price you would pay for it. How much would you pay for it if you weren’t able to remember it afterwards? To many, experiences only count if you can remember them. This is known as a memory bank. But this is weird, because doesn’t what you experience in the moment count? Animals have moments, but few or no memories. This is when we need to value our experiencing self more. Trying to recall happy moments are good, but shouldn’t you just try to enjoy the present as well? The human memory ain’t great and you will struggle to recall things. Even if we can recall, we can only recall the high point and the ending.

Memories are one-dimensional, shallow, abstract, frequently mistaken, partially fabricated and ultimately unproductive. In short, we overvalue memory and undervalue the experienced moment. – Rolf Dobelli

A life of wondrous yet forgotten moments is still a wondrous life, so stop thinking of experiences as deposits for your memory bank. One day you’ll be on your deathbed, and your account will be permanently closed. – Rolf Dobelli

Life Stories are Lies (Why We Go Through the World with a False Self-Image). We act smart and we need to know a lot via our knowledge of past events. Our brain sometimes does not remember information accurately. It remembers processed data and captures stories more vividly. Stories are things that are made up by humans. By turning it into a story, humans can remember things better. The 3Cs are used, compact, consistent, casual. Adults change as they age, more than they think they will. We tend to think that we are smarter than we actually are. This is known as self-serving bias. The trick to overcome this is to ask your friends what they think of you. Every human has their shortcomings and dark sides and it is important to see things realistically.

The ‘Good Death’ Fallacy (Why Your Final Moments Shouldn’t Worry You). When you have a terminal illness, you won’t have the ability to engage in philosophical reflection. Even if you can remember, chances are it won’t be accurate. Humans suffer from duration neglect. We have trouble evaluating how attractive other people’s lives are. Of course when you are old, you would not have such a good time as when you were younger. The key is just to live well in the present.

More crucial still is that the way you feel in your final moments is totally irrelevant in the context of your whole life. Contemplating your hour of death is unproductive, and will only distract you from the good life. – Rolf Dobelli

Better a life well lived and a few painful days on your deathbed than a shoddy life and a good death. – Rolf Dobelli

The Spiral of Self-Pity (Why it makes no sense to wallow in the past). Self-pity is largely useless and one can enter an emotional whirlpool if sucked into it. It is an unhealthy thought pattern that should be stopped. One has to accept their wrongs and move on. Blaming others has their own expiry date too. Childhood events have little impact on adult personality. You could blame your genes, but that won’t change anything. Life isn’t perfect to begin with.

If you can do something to mitigate the current problems in your life, then do it. If you can’t, then put up with the situation. Complaining is a waste of time, and self-pity is doubly counterproductive. – Rolf Dobelli

Whenever you think that some situation or some person is ruining your life, it is actually you who are ruining your life… Feeling like a victim is a perfectly disastrous way to go through life. – Rolf Dobelli

Hedonism and Eudemonia (How Meaning Can Compensate for Enjoyment – and the Other Way Around). Meaningful activities need not be enjoyable. What should you be focusing your time on? Enjoyable or meaningful activities? Instant gratification can seem animalistic. Striving for the higher pleasures for deemed as Eudaimonia. Every experienced moment has 2 components: pleasurable and meaningful. Good films also need to have a meaningful component. Some graduates are willing to take a pay cut to engage in meaningful projects. One needs to strike a balance between enjoyment and meaning.

The Circle of Dignity – Part 1 (But If Not). ‘But if not’ means ‘over my dead body’. This means issues that are not for negotiation. This is like your individual pledge. It protects you from 3 forms of attack: a) better arguments; b) mortal danger; c) deals with the Devil. You need to know where your boundaries lie. One should have a clearly demarcated circle of dignity. This is the solid ground you can fall upon. It crystallizes with time, around middle age. You need to know which principles you want to defend, and which you are prepared to give up. These are your core principles and beliefs which you need to defend.

The Circle of Dignity – Part 2 (If You Break on the Outside). You have to tell others what you believe in. You have to cherish your own will and keep persevering. People might attack our preferences, principles etc. They might be subtle and we might not even notice them. Each arrow can hurt your self-esteem and weaken your immune system. Verbal attacks can be very painful as well. This is one of the keys to a good life.

The Circle of Dignity – Part 3 (The Devil’s Bargain). What does it mean to sell your soul? Offer each money and the owner weakens. What are the things so sacred to you that you will not sell them at any price? What about your health and your opinions? We have to defend our principles against a) better arguments; b) mortal danger; c) deal with the devil. The trick is to defend your circle of dignity sharply. Everything in your circle is non-negotiable.

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