New Tool Helps Auditors Avoid Judgment Tendencies, Traps, and Biases

The Center for Audit Quality (CAQ) has released the Professional Judgment Resource, a guide designed to provide auditors with an example of a decision-making process to facilitate important auditing and accounting judgments in a professionally skeptical manner.

The Resource is aimed at assisting auditors who are responding to judgment challenges arising from the increasing complexity of business transactions, the development of principles-based (or objectives-based) auditing and accounting standards, the increasing focus on estimates, and other highly subjective elements.

The Professional Judgment Resource outlines an example of a decision-making process grounded in five essential actions that include identifying and defining the issue and reviewing and completing the documentation and rationale for the conclusion. Additionally, the Resource identifies several of the more common judgment tendencies and traps that can potentially lead to bias and weaken professional skepticism, and includes illustrative examples of these tendencies, as well as strategies to avoid them.

“It is critical for the public and capital markets to have trust and confidence in the reasonableness of judgments made by public company auditors,” said CAQ Executive Director Cindy Fornelli. “While there is no ‘silver bullet’ that will eliminate all psychological traps, increased awareness of them can improve an auditor’s decision-making process.”

While the Resource was developed with auditors in mind, it can be a useful tool for all participants in the capital markets.