Using an expert system to debias auditor judgment

Abstract

In the audit profession, judgment and decision making are essential parts ofsuccessfully completing an audit. Judgment is a crucial element of the audit process,especially with recent increase in audit regulations. At every step of the audit, auditorsare required to make several complex judgments. Psychology and audit researchdemonstrate that auditors are susceptible to numerous biases, two of which areexacerbated by the accountability inherent in the audit environment. Since the nature ofthe audit environment requires auditor accountability, this dissertation examines twobiases that have been shown to be exacerbated by accountability – the dilution effect andacceptability heuristic bias. This dissertation consists of three separate essays. Two of this dissertation’s essays experimentally examine whether use of an expert system as a decision aid in developing less experienced auditor judgment mitigates these two biases - the dilution effect (Chapter 2) and the acceptability heuristic (Chapter 3) - on auditor judgment in a complex task (fraud risk assessment). An expert system was chosen as the decision aid because research has demonstrated that expert systems have a high level of accuracy, resulting in more appropriate judgments made by less experienced auditors. The third essay is an exploratory study using process tracing that analyzes the decision makingprocess of less experienced auditors using the expert system in an environment withoutand with judgment bias present - the dilution effect. The first essay experimentally examines whether an expert system assists less experienced auditors in making lower fraud risk assessments and mitigates the dilution effect. The dilution effect is a judgment bias which occurs when too much focus is spent on irrelevant information. This bias is exacerbated in auditors when they are knowingly held accountable to their superiors. A solution has yet to be offered to materially reduce this bias. The second essay experimentally examines whether the use of an expert system as a decision aid mitigates acceptability heuristic. The acceptability heuristic is the shifting towards the preferences of another and adopting a position that is deemed socially acceptable. This bias predominantly occurs when auditors are knowingly held accountable to their superiors. Prior studies have shown less experienced auditors who are aware of the views of audit partners, will align their judgments to agree with that of the partners’. This negative auditor judgment bias has been an area researchers have vastly studied, yet a method to reduce it has not been offered in the literature. The third essay is an exploratory analysis which uses process tracing to analyze the thought processes of less experienced auditors in making decisions in an environment where a judgment bias occurs - the dilution effect. This essay used a subset of participants from the dilution effect study (Chapter 2) and during the experiment, participants were asked to think aloud to gain further insight into the dilution effect. The think aloud process also captures factors about the process of using the expert system which contributed towards the mitigation of this bias. Auditor decision making process with and without the use of an expert system will be captured both within and between the participant groups.

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