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Terms in this set (33)
What is the primary purpose of the monograph?
To help readers understand professional judgment and to help them improve their judgment abilities.
How do perceptual biases relate to judgment biases?
Similar to how our minds can be deceived by optical illusions or perceptual biases, there are times when our intuitive judgment falls prey to systematic traps and biases.
True or False: You cannot teach judgment; either you have it or you don't.
False. Experience is important; however, gaining knowledge and skill relating to exercising good judgment can help elevate and improve judgment maturity.
What are the five steps in the judgment process?
1. Clarify Issues and Objectives
2. Consider Alternatives
3. Gather and Evaluate Information
4. Reach Conclusion
5. Articulate and Document Rationale
What are two common judgment traps?
Rush to Solve and Judgment Triggers
Within an auditing context, what is professional judgment?
Professional judgment is the process of using relevant training, knowledge, and experience to reach a decision or draw a conclusion in evaluating evidence, estimating probabilities, or selecting between options.
What is fundamental to exercising professional skepticism?
The concept of judgment framing or appropriately questioning a client's perspective by viewing the situation through other frames is fundamental to exercising professional skepticism.
How can considering multiple judgment frames enhance an auditor's professional skepticism? Explain and give an example.
Looking at an issue through a fresh lends gives auditors the opportunity to look at a situation from a different perspective.
What role do metaphors and analogies play in judgment framing, and how can they be used to improve your ability to examine issues through multiple frames?
We adopt metaphors or analogies as part of our judgment frames to help us make sense of complex situations. For example: "the war on drugs" versus "a cancer on the nation." Identifying these helps us recognize the frames we are processing our perspectives and judgments in. After understanding our current frame, we can consider alternative frames.
Which of the following is an example of the confirmation bias?
a. An auditor improperly concludes on a complex revenue recognition matter without having the appropriate technical accounting background.
b. An auditor improperly concludes on the valuation of an investment security by looking at only the most recent sale of the security.
c. An auditor improperly concludes on the accounts receivable balance because negative confirmations were sent instead of positive confirmations.
d. An auditor improperly concludes a contingent liability is properly stated after examining only the evidence that supported the amount accrued in the financial statements.
What tendency is most likely manifest in the following situation? An engagement team performed a substantive analytical procedure over an expense account. When investigating a significant difference, the team was satisfied with limited evidence to support the client's plausible explanation (which was in fact incomplete) for the difference.
a. Confirmation tendency
b. Limited resources
c. Overconfidence tendency
d. Time pressure
What is the most important factor in avoiding traps or reducing bias?
Awareness of potential traps and conditions that lead to bias is the most important factor.
True or False: People are simply hardwired to sue judgment shortcuts, and as such, there is no way to avoid the related biases.
False. While reliance on judgment shortcuts does come naturally, awareness of conditions that can lead to bias provides decision makers the ability to identify logical methods to reduce the bias.
Which of the following is NOT recommended when trying to mitigate the risk of bias attributable to the availability tendency?
a. Consider the most unusual case
b. Make the opposing case
c. Consult with others
d. Get objective data
Which of the following best describes a technique to mitigate the confirmation bias?
a. Consider the most unusual case
b. Make the opposing case
c. Consult with others
d. Get objective data
Which of the following is not a technique to help an auditor mitigate possible bias stemming from use of judgment shortcut?
a. Be aware of the bias and when you might be vulnerable to it
b. Seek disconfirming evidence
c. Seek the advice of someone who agrees with your position
d. Identify and acknowledge personal preferences
Which of the following is on of the keys for effectively preparing for a brainstorming session?
a. The engagement team should participate in a pre-meeting to assess the objectivity of the participants attending the meeting in order to avoid bias.
b. The individual team members should generate ideas before the meeting with an understanding their ideas will be shared.
c. The leader should send out an agenda of important topics and preliminary conclusions for the participants to consider before the meeting in order to expedite the process.
d. The purpose of the meeting should not be communicated prior to the meeting in order to avoid individual pitfalls and biases.
True or False: It is essential to carefully apply each step in the judgment process in the KPMG Professional Judgment Framework for all judgements.
False. For easy, low-stakes judgments, common sense and quick consideration of one or two steps in the judgment process may be enough to make a good judgment.
Describe how reflection applies to the KPMG Professional Judgment Framework.
Answer: Reflection is often the best way
to identify whether a judgment has been influenced by a judgment trap or bias, like
a judgment trigger that could have led the decision maker down a "garden path" toward a narrow set of alternatives.
Which of the following best describes the relationship between professional skepticism and professional judgment?
a. Professional skepticism is an attitude that includes a questioning mind and a critical assessment of audit evidence that is separate and apart from the process of exercising professional judgment.
b. Professional skepticism is an attitude that includes a questioning mind and a critical assessment of audit evidence that is part of the process in forming professional judgments.
c. Professional skepticism is synonymous with professional judgment.
d. There is no relationship between professional skepticism and professional judgment.
Which of the following best describes a judgment trigger?
a. An alternative stated in terms of a judgment objective
b. A technique for making effective judgments quickly
c. An issue/problem stated in terms of a particular alternative
d. A technique for more effectively evaluating another's judgment
Which of the following statements about judgment frames is correct?
a. A situation cannot have more than one appropriate frame.
b. There is often no single best frame for a given situation.
c. Frames are not used by risk averse individuals.
d. Professionals should eliminate the use of frames from their judgment processes.
Which of the following is not a step in reframing a situation?
a. Challenge the current frame b. Generate alternative frames c. Justify the current frame
d. Understand the current frame
Describe the availability tendency in your own words, and give an example of how the tendency could result in auditor bias.
Answer:The tendency for decision makers to consider information that is easily retrievable from memory as being more likely, more relevant, and more important for a judgment.
Student examples will vary. An illustrative example would be: An auditor who identified a significant amount of liabilities not recorded on a prior audit is likely to overestimate the likelihood 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 for, and put more weight on, information that is consistent with their initial beliefs or preferences. Student examples will vary. An illustrative example would be: If management has taken a particular stance in accounting for a complex transaction, and the authoritative standards are not very clear on the subject, the auditor may be likely to find evidence that supports or "confirms" management's treatment of the transaction.
The confirmation bias is a subconscious tendency to do which of the following?
a. Seek evidence that confirms a biased judgment
b. Seek evidence that confirms a previously held view
c. Underutilize confirmations in the testing of accounts receivable
d. Seek evidence that disconfirms a previously held view
Which of the following is true with respect to the overconfidence bias?
a. Overconfidence is always a conscious bias.
b. Overconfidence could result in the consideration of too many alternatives.
c. Overconfidence usually decreases with experience.
d. Overconfidence could result in engagement team members performing audit procedures that are beyond their skill sets.
Which of the following describes how the availability tendency is most likely to affect auditors?
a. Auditors may first consider different potential causes for an observed fluctuation before seeking the client's explanation with regards to analytical procedures.
b. Auditors may rely on information provided by client staff who is most knowledgeable about an audit area rather than the staff most easily accessible.
c. Auditors may seek evidence that supports their belief of how a transaction should be accounted for.
d. Auditors may weigh more heavily the information that was received most recently from a client relative to information received earlier during the audit.
Why is lack of expression of disagreement a sign of potential problems in group judgment?
Groups tend to do better than individuals because of the different perspectives and insights that are brought up and considered by the group. If expression of disagreement is stifled, one of the key benefits of group judgments is eliminated. The tendency to reach quick consensus is more likely to come into play, bringing with it the dangers of GroupThink.
Summarize the key ways to enhance the effectiveness of groups in the context of a fraud risk assessment meeting.
Participants should be asked to prepare ahead of the meeting by generating their own ideas, with the expectation that they will be asked to share their ideas
at the meeting.To enhance participation and a sharing
of ideas, group members present the ideas they have prepared prior to the meeting with little or no discussion. There should be little or no criticism or evaluation of ideas at this point. Once the ideas are on the table, an open discussion should be facilitated, encouraging those with different or opposing viewpoints to speak up.
Which of the following statements is false regarding group judgment?
a. Good judgment principles are similar for individuals and groups.
b. Groups can fall into judgment traps and biases.
c. Groups are prone to making quick decisions in order to avoid conflict.
d. Groups are not prone to judgment traps and biases.
What best describes the relationship between diversity of thought and group judgments?
a. Differences in opinions indicate internal conflict, which team members should avoid.
b. Diversity in thought should be fostered in group judgment and typically improves judgment quality.
c. Team members should always work together to reach an early consensus.
d. GroupThink is a pitfall that teams may fall into as a result of encouraging expression of different ideas within the group.
KPMG encourages experienced professionals to take time to coach less experienced professionals through the process of making critical judgments rather than just making those judgments themselves, even though it may take more time to do so. Why is this important?
KPMG takes seriously the development of our people, and on-the-job coaching and mentoring is an essential part of developing the professional judgment of less experienced people. Walking through critical judgments with less experienced professionals enables the less experienced professionals to better understand the elements of a judgment process and how they are applied in difficult accounting and auditing contexts. The KPMG Professional Judgment Framework provides
a shared conceptual understanding of good judgment and it facilitates coaching and mentoring and training by providing a common understanding and vocabulary relating to the elements of good judgment as well as the traps and biases that can threaten good judgment.
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Auditing Module F
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Auditing Module G
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