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.
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 preexisting beliefs (confirmation);
and (5)failing to consider all available data (rush to solve).
Using a professional judgment framework can help CPAs prevent biases from creeping into their work. Decisions also can be improved by “considering the opposite” or explaining why an initial assessment may be incorrect.
Read more about decision making and judgment bias that can affect accounting and auditing decisions in this featured article in The Journal of Accountancy