INTHEBLACK April/May 2024 - Magazine - Page 54
WORK SMART
The bias
conundrum
Cognitive bias is hardwired into our brains to help us
navigate daily information overload. While it can be
very useful, it can also result in inaccuracies not being
identified until it is too late. For accounting, the
consequences can be disastrous.
Words Megan Breen
Confirmatio
n
A tendency bias
to favour
data or inform
supports pre ation that
co
notions, such nceived
a company’s as about
fi
health, which nancial
lead to financ could
reporting er ial
rors.
COMMON COGNITIVE BIASES
IN ACCOUNTING
Sunk-cost fa
llacy
A tendency
to keep
investing in
so
based on ho mething
w
already been much has
such as hesi invested,
ta
write off cert ting to
ai
investments n assets or
th
value, which at have lost
co
inflated balan uld lead to
ce sheets.
Groupthink
A phenomen
o
people priori n where a group of
tise consensu
critical evalua
s over
such as the cotion of information,
critically eval llective failure to
statements o uate financial
r
This may lead audit procedures.
financial rep to incorrect
orting.
Anchoring
bias
A tendency to rely too
heavily on the initial
information, or “anchor”, when
decision-making, such as assessing financial
figures based on previously reported numbers
or industry benchmarks rather than on recent reports.
This can lead to errors if anchors are invalid or irrelevant.
54 INTHEBLACK April/May 2024
Ov
e
A t rco
ov end nfid
pr eres enc enc
pe edic tima y to e bia
s
be rformtion te o
ac lievi a s or ne’s
fin cura ng t task abil be
Th anci tely hat , suc ity toliefs,
op is ca al v est one h a
fin timi n le alue imat can s
an sti ad s o e
cia c o to r r
l re r p ov isk
po ess erl s.
rtin im y
g. istic
Above: Accounting and
finance professionals need to
be aware of cognitive biases
and take steps to mitigate
them through internal
controls, external audits
and a culture of ethical
accounting practices.
