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Accountant and Auditor Bias

By Franziska Wolf

Let’s begin with the fundamental issue when dealing with bias in any domain: our self-perceived ability to be and remain objective. In psychology, we term this the bias blind spot. It is tempting to think that we are quite neutral in our evaluations and decision-making, while believing others to be more likely to show biases in their work. This is in part due to biases that operate outside of our immediate awareness, such as the self-serving tendencies in our justifications.

With the admission that we can all be vulnerable to the subconscious workings of biases, let’s turn to the work of accountants and auditors specifically. 

Their work often entails some level of ambiguity: the baseline condition for biases to influence our judgment. No matter how (subconsciously) biased an auditor or accountant may be, he would not make a decision that cannot be rationalized or explained when a case is clear. For their reports to be reliable and valid across all of their work, objectivity is essential. However, the independence needed to remain objective in one’s judgments is often threatened by these following factors in particular:

Financial incentives – it may be tempting to go along with the client’s interests in a case when future   business is dependent on it: the client hires and fires the accountant and audit firms. Even more problematic is the provision of extra services to the client (e.g. consulting) – particularly when the benefits reaped off of the extra services outweigh the profits from accounting/auditing work.

Personal relationship with the client – it is not uncommon for audit and accounting firms to be hired    over a longer period of time. If an accountant works his way up from junior level, he could be with a client for up to 10 years, even. The personal contact will not go without some private and professional opinion being formed, and in long business relationships, there presumably is trust. Attachment, seeking approval and familiarity can make us lean toward a favorable conclusion.

Alongside these systemic risk factors, there are five main biases that can come into play:

Confirmation bias: Perhaps the most commonly known bias – seeking information that confirms             preexisting beliefs or expectations. Accountants’ and auditors’ experience with projects and cases can shape their judgments of future instances of similar kind. The personal contact with the client is also a source of potential confirmation bias, as we all form some level of private judgments about the people we meet and thus derive at expectations of whether they may be honest and accurate in their accounts or not. Similarly, the business relationship would reasonably create more positive expectations the further back it goes. 

Overconfidence: The most striking example of the overconfidence bias came from what I learned in my masters about investigative interviewing. Studies show that student participants actually have a slightly better hit-rate when making innocent/guilty judgments in viewed suspect interview videotapes than experienced investigators. The latter have a tendency to overestimate their ability to catch lies and as a result show a bias toward ‘guilty’ judgments. The same applies to the work of accountants and auditors: they can overestimate their own ability of being accurate and neutral in their decisions, as well as their self-assessment              capacities. This could also be expressed in decision-making behaviour: how many scenarios are considered and much information is evaluated, how swiftly decisions are made and how much work is taken on.

Availability: This is a bias that everyone involved is at risk of: accountants, auditors, tax professionals, analysts and investors. It involves taking the mental shortcut of relying on salient, most easily recalled or easily available information. Our past experiences shape our expectancies, which can guide our judgments without our intention. 

Anchoring and adjustment: The bias is about (insufficient) adjusting from a value anchor. Once given    a financial statement or estimation, we are prone to use this as a basis from which to make our own judgment, and may be mislead by this. For example, if I tell you that the percentage of lactose intolerant people in the Netherlands is just 3%, you will be likely to estimate a similarly low amount – even if I told you the number was completely random! This may sound unlikely to some, but has been demonstrated by research.

Rush to Solve: This bias, which speaks for itself, occurs through shortcuts in decision-making.   Motivated by other biases such as described above, by deadline pressures or a good history with a client, deliberations may be skipped, not all data reviewed, and, in turn, the biases above may be strengthened.

Why do these biases occur?

The causes for these biases are subconscious heuristics that have developed over the course of one’s life: patterns emerge from our experiences and allow us to go easier on the ‘thinking work’. Our subconscious is interested patterns and rules, not exceptions. However, the heuristics and biases do not only come into play when indeed convenient – they are particularly prone to be activated when our cognitive resources are depleted. Thus, be extra mindful of your objectivity when you are feeling a bit stressed, tired, hungry or mentally strained from previous decision-making.  

How can auditors and accountant stay objective?

In order to try to stay aware of the vulnerabilities of our thinking processes, a general attitude of distrust towards first impressions and hypotheses is helpful. Making a habit out of questioning our own conclusions helps us to keep an open mind, and encourages a thorough information-search and consideration of alternate scenarios on a case. Moreover, one should learn to recognize situations in which one may be more vulnerable to the workings of subconscious biases, and make use of any formal guidelines and decision-frameworks. While the four-eyes-principle (two people look over a report) is a good start in accounting and auditing, extra sets of eyes could be considered wherever time and money allows.

Clients should be kept on shorter contracts and personal contact limited where possible. Concerning the financial incentives, audit and accounting firms should ensure that profits from extra services are not in large disproportion to those from the audit and accounting work. The independence and objectivity of those in question can partially be protected by ensuring that no conflicting interests arise, for example as a result of the types of extra services supplied to the client and the height of the profits earned. Firms can also work toward higher standards of oversight and create more awareness of potential practice risks (financial consequences of malpractice; reputation, license). This would help to go against the discounting of vague and/or future consequences to malpractice, because people tend to be much more influenced by immediate risks than potential later ones.

In summary, auditors and accountants face a number of internal biases (just like everyone else) and systemic risk factors to their objectivity and independence in their work. Becoming aware of these factors by having read this article is a hopefully a helpful insight for your striving towards best practice. This can be achieved with a critical attitude towards our first impressions and being mindful of situations that make us particularly vulnerable to bias. Audit and accounting firms can work toward systemic changes to shorten- and depersonalize client relationships to a realistic and functional degree, and to reduce any conflicting interests that arise based on extra services or other financial incentives.


Hardies, Breesch, & Branson - Male and female auditors' overconfidence

Stanford Business – Are Auditors Biased?

Journal of Accountancy – I’m not biased, am I?

Slapnicar, Zaman Groff, & Loncarski - How to Mitigate Auditor’s Conscious and Unconscious Bias? An Experimental Study

Harvard Business Review – Why Good Accountants do Bad Audits

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