Cognitive Bias in Auditing: When Your Brain Plays Mind Games with Your Audit

Let’s face it – as auditors, we’re always on the lookout for ways to improve processes, protect assets, and help the organization steer clear of sticky situations. But while we scrutinize balance sheets and investigate control weaknesses, there’s something else at play. Something lurking right in our heads that can sway our judgment: cognitive bias. Yes, our brains are trickier than any fraudster, and without us even realizing, they can throw our work off track.

Let’s look at what cognitive biases are, how they sneak up on us during audits, and some ways to give these biases the boot.

Cognitive Bias: What’s Really Going On Up There?

Cognitive bias is when our brain shortcuts a little too quickly, taking us off course. It’s our mind’s way of filling in gaps – sometimes beautifully, sometimes laughably wrong. In auditing, this can mean distorted judgments, missed red flags, and, worst of all, audits that don’t quite hit the mark. Let’s break down some of the main characters in the Bias Brigade.

1. Confirmation Bias – Think of this as the “I knew it!” bias. Once we believe something, we stick to it like glue, looking for evidence that says, “Yep, you’re totally right!” This is great when ordering a favorite meal but risky in auditing. Imagine skipping over anomalies because they don’t match your initial hunch. Ouch.
2. Anchoring Bias – This one is like taking your GPS’s first suggestion and ignoring all the detours. In auditing, this happens when we’re influenced by the initial data we receive, setting the bar without looking further. It’s like saying, “Well, I already set the risk assessment here, so everything else must be close enough.” Close enough doesn’t always cut it.
3. Overconfidence Bias – Also known as “Trust me, I got this.” You’ve been auditing for years, and yes, you’re probably amazing, but nobody’s perfect. Overconfidence in your judgments can make you overlook critical details, like saying, “Oh, it’s probably fine,” when it really, really isn’t.
4. Availability Bias – This is the “You’re only as good as your last audit” mentality. If you tend to rely on what’s most available (i.e., what’s top of mind), you might miss important details lurking in the lesser-known parts of the organization. Just because something hasn’t popped up recently doesn’t mean it’s not there!

Why Cognitive Bias Loves Audits

Why do cognitive biases love hanging out in audits? Because audits are about evaluating risks, assessing evidence, and making judgments. That’s like a playground for biases. These little brain quirks can lead to big missteps:

• Confirmation Bias in Substantive Testing: Imagine you believe a department is a low fraud risk. You might breeze past indicators that would make you pause elsewhere. Spoiler alert: sometimes it’s the “safe” places that need the closest look.
• Anchoring Bias in Risk Assessment: Say management hands you a rosy risk report. You might subconsciously set your radar on the optimistic side, overlooking details that could paint a less sunny picture.
• Overconfidence Bias in Reporting: Feeling 110% certain that everything is shipshape could lead to an audit report that’s missing the real story. You might unintentionally gloss over risks that need a closer look.
• Availability Bias in Sampling: Using the “easy” data or samples close at hand can mean missing the complete picture. If you only take a handful of convenient examples, you’re likely leaving a whole iceberg of risk unexamined.

Cognitive Biases and Audit Quality: What’s the Damage?

Biases can sabotage audits by:

• Skewing Risk Assessments: You might end up prioritizing less relevant risks, which could lead to missing bigger threats to the organization.
• Incomplete Evidence Collection: Cognitive bias can mean collecting data that matches our expectations rather than a full spectrum of evidence.
• Overlooked Control Weaknesses: Biases can lead to oversight. A confirmation bias might keep us from seeing weaknesses in a well-regarded team, for instance.
• Loss of Objectivity: Once biases creep in, it’s like wearing tinted glasses – everything starts looking a certain way, even if it isn’t. That’s not great when stakeholders rely on your work to make decisions.

So, How Do We Outsmart Our Own Brains?

Luckily, auditors have tricks up their sleeves. Here’s how you can stay sharp, objective, and let the audit shine, free from pesky biases:

1. Self-Awareness – Recognize that cognitive biases are real and probably influencing you right now. Training, refreshers, and reminders can help you spot when you’re about to fall into a bias trap.
2. Peer Review Party – Invite a colleague to check your work. A fresh pair of eyes can see things you might miss and help identify any biases that snuck in.
3. Data-Driven Decisions – Embrace data like your new best friend. Hard numbers don’t lie, and they help keep those “gut feelings” in check.
4. The Devil’s Advocate Drill – Assign someone to challenge your findings, playing devil’s advocate. It’s surprising how many biases pop out when someone else starts questioning your assumptions.
5. Rotational Auditing – Moving auditors around can help prevent familiarity from biasing judgment. A new perspective on a familiar area can often reveal things you didn’t expect.

Real-World Scenarios: When Bias Strikes Back

Let’s see how these biases play out in real audit situations:

• Confirmation Bias and the Expense Report Surprise: Imagine an auditor is certain a longtime employee is squeaky clean. They skim through the expense report without much scrutiny. That’s when suspicious claims slip right under the radar – and cognitive bias just gave fraud a free pass.
• Anchoring Bias and Inventory Valuation Trouble: During a financial audit, an auditor anchors their assessment on the initial inventory value provided by management. That number sticks, and suddenly the auditor’s deeper dive isn’t so deep. Guess who ends up with errors in the valuation?

Conclusion: Auditors, We’ve Got This (But Stay Wary)

Cognitive biases are sneaky, smart, and love a good audit. But with awareness, a few tricks, and a readiness to challenge our own thinking, we can stay sharp and objective. So, the next time your gut says, “This feels right,” give it a second thought – it might just be your brain playing mind games. Embrace data, stay curious, and keep biases in check. And remember, our goal as auditors is always the same: get the real picture, no matter what our brain says otherwise.

Embracing Professional Skepticism: A Series to Build a Skeptical Mindset

To help make this essential concept more relatable, I’ve launched a series of short videos that break down professional skepticism into bite-sized pieces (don’t worry, no jargon overload!). As auditors, we need to elevate our human skills to tackle the complexity and biases in our work.

The second video in the series, "Cognitive Bias in Auditing", explores the impact of cognitive bias in auditing and shares practical tips to keep our audits unbiased, insightful, and sharp.

Understanding cognitive bias is one side of the coin in the quest towards professional skepticism. Join me in building a skeptical mindset that’s not only helpful but essential for high-quality audits. It’s time to make professional skepticism something we can all master and, dare I say, enjoy! Stay tuned for the series.

#InternalAudit, #CognitiveBias, #AuditQuality, #RiskManagement, #AuditInsights, #BiasAwareness, #AuditProfessionals, #AuditTips, #DecisionMaking, #RiskAssessment, #AuditObjectivity, #AuditHumor, #AuditChallenges, #BiasMitigation, #AuditExcellence

About The Evolving Auditor Newsletter

Empowering audit, risk, and compliance professionals to elevate their human skills and unlock their full potential. Each edition delivers thought-provoking insights on topics such as cognitive bias, critical thinking, active listening, professional skepticism, powerful questioning, mindset mastery, mental fitness, trust-based relationships, and effective communication. From understanding yourself and others to presenting with impact and writing compelling reports, this newsletter equips you with the tools to thrive professionally and personally. Subscribe to start evolving and transforming your career.

Subscribe today to get the latest insights, tipcs and stories that can inspire you.

About Me

I am Bhavani Jois, a passionate leader and coach who has successfully pivoted after a 25 year career in governance, risk, and audit.?My journey from auditor to coach has been shaped by resilience, curiosity, and a deep belief in the transformative power of coaching.

During the pandemic, I reignited my passion for coaching, leading me to fully embrace my calling and establish The Evolving Way and The Evolving Auditor.

I’m dedicated to helping individuals and teams unlock their potential, achieve lasting growth and find fulfilment in their professional and personal lives.

Join me on this journey of transformation and empowerment!