ABSTRACT
Successful crisis prevention depends on firms’ capabilities to anticipate and assess potential risks, “black swans” and their consequences, to develop necessary strategies and contingency plans. Theoretically, this means a link between how well practitioners perceive their firm’s preparedness for future risks and the sophistication of their risk management systems (RMSs). Better preparedness requires more sophisticated RMS. The accounting industry is particularly vulnerable to the effects of digitisation. This chapter analyses small and medium-sized Norwegian accounting and auditing firms in terms of relationships between perceived preparedness for handling risks and the level of sophistication in an RMS. Results from a survey show that the 510 respondents can be grouped into three clusters regarding relations between preparedness and sophistication: (1) uncertain firms with low preparedness and low sophistication, (2) well-prepared firms with higher preparedness and high sophistication and (3) overconfident firms with highly perceived preparedness but low sophistication in their RMS. Further analysis shows the existence of the so-called “Dunning–Kruger effect” in one cluster, where companies with less sophisticated RMS perceive themselves as more prepared to handle potential risks. We discuss the possible consequences of overconfidence, including firms’ potential downfall. Generally, companies can improve their preparedness by introducing scenarios alongside their RMS.
