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.
