One risk that auditors need to be aware of is the undue influence of “cognitive biases”. A cognitive bias is a systematic pattern of deviation in judgment whereby we may draw inferences about other people and situations in an illogical fashion. Cognitive biases compel us to form beliefs and make decisions in systematic ways that are often erroneous.
Auditors are vulnerable to a host of such biases because performance auditing involves exercising judgment and making decisions throughout the audit process (in planning, evidence collection, data analysis, managing relationships, reporting, and more).
Here are four cognitive biases that auditors should be especially wary of:
People tend to use an initial piece of information as an ‘anchor’ against which subsequent information is judged. Audit theory is predicated on a neutral assessment of audit evidence. If the auditor is ‘anchored’ to evidence that corroborates management’s assertion, he or she may downplay the significance of other information that contradicts management. Where the audit team has audited the entity previously, the auditor may be ‘anchored’ to prior conclusions. Anchoring bias would tend to undermine the effective application of professional scepticism.
People overemphasise the importance of more recent information. Recency bias may impair the auditor’s ability to derive trends from data, as the most recent evidence may be seen as more relevant than evidence from trends over several years. This could lead to inaccurate decisions about which management assertions to challenge.
Confirmation is the potential tendency for an auditor to put more weight on information that is consistent with his or her initial beliefs or preferences. When collecting information (particularly once a preliminary view is developed), an auditor may unwittingly put more weight on information or evidence that supports an initial preference or expectation. As a result, the auditor may rely unconsciously on evidence that is biased toward his or her expected or preferred alternative, rather than objectively evaluating the facts as they exist. An auditor may not adequately consider potentially contradictory information that could result in a valid alternative to a preliminary conclusion.
People overestimate the importance of information that is available to them. Availability is the potential tendency for an auditor to consider information that is easily retrievable (e.g., a vivid or recent memory) as being more likely, more relevant, and more important for a judgment. In other words, the information that is most available to an auditor’s memory may unduly influence estimates, probability assessments, and other professional judgments. Like other mental shortcuts, the availability tendency can serve an auditor well, but it can also introduce bias.
Being aware of the influence of cognitive biases on performance auditing can help avoid undesirable outcomes and improve the quality of the audit. Auditors should take the time necessary to do a good investigation of an audit problem, especially if it is a recurrent problem (e.g. “We found the same thing last time!”). In order to mitigate against any of the cognitive biases, the key is for audit teams to continually ask themselves “What would prove us wrong?”.
If you want to explore this topic and learn the basic skills required to become a world-class performance auditor, register for our Audit Boot Camp and Root Cause Analysis course.
Association of Chartered Certified Accountants (ACCA) (2017). Banishing Bias? Audit, Objectivity and the Value of Professional Scepticism. Available at: www.accaglobal.com/content/dam/ACCA_Global/Technical/audit/pi-banishing-bias-prof-scepticism.pdf
Center for Audit Quality (CAQ) (2014). Professional Judgment Resource. Available at: www.thecaq.org/wp-content/uploads/2019/03/professional-judgment-resource.pdf
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