Question

4. Describe the availability tendency in your own words, and give an example of how the tendency could result in a lack of audit effectiveness. How can the tendency be mitigated?

5. Describe the confirmation tendency in your own words, and give an example of how the tendency could result in a lack of audit effectiveness. How can the tendency be mitigated?

6. Describe the overconfidence bias in your own words, and give an example of how the bias could result in a lack of audit effectiveness. How can the bias be mitigated?

7. Describe the anchoring bias in your own words, and give an example of how the bias could result in a lack of audit effectiveness. How can the bias be mitigated?

Answer 1

4. Availability tendency is when an auditor while solving a particular question or performing a task allows an example or information that readily comes to his mind to make a decision. This tendency can lead to audit ineffectiveness as the auditor will not find more information that is relevant or more appropriate while performing the audit . For example the auditor may use the audit procedures of one company in another company of the same industry without finding properly the procedures that need to be applied in another company to gather audit evidence.

This tendency can be mitigated when the auditor maintains professional skepticism i.e. he keeps an open mind and uses all the information received or gathered by him to make a decision.

5.Confirmation tendency is when the auditor finds the information or evidence in such a way that confirm with the pre-convened results that the auditor or his employer want answered. The auditor may overlook all other information that is contrary to the results that are required. Such tendency can lead to audit ineffectiveness , for example the auditor may perform only those audit procedures that may confirm his result and not look at the entity as a whole , while doing this the auditor will overlook certain areas which may be important or those areas ma contain risk of material misstatements leading the financial statements to be materially misstated.

To mitigate the tendency the auditor must make a full program of all the procedures to be followed and all the areas where he would conduct the audit and he must follow the program diligently. This will lead him to find all the information and he can make decisions without any bias or without any pre conceived notions of what the results should be.

6. Overconfidence bias is when an auditor overestimates his abilities , He may overestimate his ability to perform tasks or he may take on too much work which ultimately results in poor work performance. The bias can lead to audit ineffectiveness, for example the auditor may take on too many projects thinking he will be able to complete them within time but he is unable to manage them which leads to poor work performance or incomplete projects . This also leads to a low credibility of the auditor.

To mitigate this bias the auditor should not think of himself as being better than everyone else and always find ways to improve himself. If he will continue to learn and improve himself his work will also improve.

7.Anchoring bias is when the auditor uses a value as an anchor and then make adjustments to it to arrive at the result without confirming whether the value was correct o not. Anchoring bias leads to audit ineffectiveness as suppose before beginning his audit the auditor conducts interviews of the staff and of the management to gain an understanding about the entity and the work process . Therefore even before the auditor begins his work of performing audit procedures he has information about how the work is performed (anchor), therefore all the judgements will now be based on this information received i.e. the anchor.

To mitigate this bias the auditor should trust his own instinct , knowledge and experience . He should obviously collect all the information but he must analyse it first and then come upon a conclusion .