Case study of “Rigorous or Not?: A Case of Auditor Judgment for Deferred Tax Issues”

Judgment Framework and Professional Judgment

Discuss the importance of “judgment framing.”

“Judgment framing” occurs early in the judgment process. The definition of framing follows: Frames are mental structures that we use, usually subconsciously, to simplify, organize, and guide our understanding of a situation. They shape our perspectives and determine the information that we will see as relevant or irrelevant, important or unimportant. Frames are a necessary aspect of judgment, but it is important to realize that our judgment frames provide only one particular perspective.

The importance is that judgment framing question management’s …show more content…

Example: An auditor who identified a significant amount of unrecorded liabilities on a prior audit is likely to overestimate the likelihood of the presence of unrecorded liabilities on a subsequent audit.

Describe the confirmation tendency in your own words, and give an example of how the tendency could result in auditor bias.

The tendency for people making judgments to seek and to put more weight on information that is consistent with their initial beliefs or preferences. Example: If management has taken a particular stance in accounting for a complex transaction and the authoritative standards are not clear on the subject, the auditor may be likely to seek and to place inordinate weight on evidence that supports or “confirms” management’s treatment of the transaction.

What are some common judgment traps that prevent exercising good professional judgment?

• Shortcuts: May lead to systematically biased judgments. • The “Rush to Solve”: The tendency to want to immediately solve a problem by making a quick judgment. • “Judgment trigger”: Can lead the decision make to skip the crucial early steps in the judgment process.

What is the most important factor in avoiding traps or reducing bias?

The most important step in avoiding judgment traps and reducing bias caused by subconscious mental shortcuts or self-interest is “awareness”. By better understanding traps and biases, and recognizing