Five ways to overcome confirmation bias

According to an article in the CPA Journal of Accountancy: “Confirmation bias—one of the five commonly occurring judgment biases—has the potential to trip up auditors, particularly during the early stages of an audit. At that time, financial information is often highly aggregated and may be too ambiguous to allow the auditor to definitively identify the reason for a change in financial information. As a result, an auditor’s initial hypothesis may not actually represent the true cause of the data fluctuation.”

The deeper the auditors get into investigating a particular hypothesis, the more difficult it becomes to consider other potential hypotheses. This is because once a potential explanation has been identified, it is common to seek evidence that supports it and ignore evidence that does not support the explanation. This is the behavior psychologists refer to as confirmation bias. As such, if auditors generate an early hypothesis, they risk overlooking important contradictory evidence that may result in a flawed evaluation of the data.

What can be done? Auditors can take several simple and pragmatic steps to overcome this bias when performing analytical procedures. Learn more by reading the online article 5 ways to overcome confirmation bias by Benjamin L. Luippold, Ph.D., Stephen Perreault, CPA, Ph.D. and James Wainberg, Ph.D. dated February 1, 2015.

I’m not biased, am I?

An article in the CPA Journal of Accountancy reports that: “Five common judgment biases have the potential to influence financial statement preparers and auditors in their work. Learning how to spot and short-circuit these biases can help CPAs maintain their objectivity.”

According to the article, decisions can be influenced by: (1) relying on information that is most readily accessible (availability); (2) focusing on a preliminary amount and making an adjustment (anchoring and adjustment); (3) overestimating abilities (overconfidence); (4) making interpretations that support pre-existing beliefs (confirmation); and (5) failing to consider all available data (rush to solve). Using a professional judgment framework can help prevent biases from creeping into your work.

The professional judgment framework developed by the US Center for Audit Quality (CAQ), which is affiliated with the AICPA, includes five steps: (1) Identify and define the issue; (2) gather the facts and information and identify the relevant literature; (3) perform the analysis and identify potential alternatives; (4) make the decision; and (5) review and complete the documentation and rationale for the conclusion. The five common judgment biases summarized in this article can manifest across any of the five steps in the judgment process. To mitigate bias in judgments, follow each step of the framework and maintain an awareness of the potential biases and an attitude of professional skepticism.

Consider the guidance in the online article I’m not biased, am I? by Rebecca Fay, CPA, Ph.D., and Norma R. Montague, Ph.D. dated February 1, 2015. Also, learn about the decision-making process by taking a short decision-making quiz.