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Why Good Accountants do Bad Audits

Management (MGS)
Course Code
Phani Radhakrishnan

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Why Good Accountants do Bad Audits
- The real problem isnt conscious corruption. Its unconscious bias
The Roots of Bias
- Our desires powerfully influence the way we interpret information, even when were
trying to be objective and impartial
- Armed with the same information, different people reach different conclusions ± ones
that favour their own interests
Accounting for Bad Accounting
- Bias thrives wherever there is the possibility of interpreting information in different ways
- Once people equate their own interest with another partys, they interpret data to favour
that party. Attachment breeds bias
- Self-serving biases, become even stronger when people are endorsing others biased
judgements align with their own biases ± than when they are making original judgments
- Familiarity: People are more willing to harm strangers than individuals they know
- Discounting: People tend to be far more responsive to immediate consequences than
delayed ones, especially when the delayed outcomes are uncertain
- Escalation: Its natural for people to conceal or explain away minor indiscretions or
oversights, sometimes without even realizing that theyre doing it
Problems with Proposed Reforms
- It takes very little ambiguity to produce biased judgements
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