IDENTIFYING COMMON JUDGMENT TRAPS AND BIASES: The most basic requisite of ethical conduct is being able to identify common judgment traps and your own biases, but that's often easier said than done.

Author:Butcher, Daniel

MANAGEMENT ACCOUNTANTS' ethics training is insufficient if the only takeaway is a list of rules to follow when making tough judgment calls. When professionals commit misconduct or an ethics violation, such missteps can often be attributed to judgment traps and innate biases--i.e., ethical blind spots--that affect professionals' decision making in unexpected ways. Bias is a form of prejudice that isn't always obvious. In order to make less-biased decisions, you must look at yourself in the mirror and identify these judgment traps and biases, some of which may be unconscious.

"Finance professionals and accountants in business should be applying professional skepticism," said Diane Jules, deputy director of the International Ethics Standards Board for Accountants (IESBA). "They need to be aware of their own biases."

A major challenge is the typical rush to attain objectives or resolve issues without considering ethical implications, according to Steve Goldberg, accounting professor at Grand Valley State University's Seidman College of Business.

"Decision makers hurry to make a decision to meet deadlines or try to be helpful but don't think through the entire problem," Goldberg said. "An experienced manager thinks he knows the right thing to do before going through a careful judgment process and before gathering all relevant information."

Cognitive traps and biases, which can negatively influence professional judgment, tend to occur for three reasons: groupthink, a rush to judgment, and trigger events, according to Steven Mintz, a professor emeritus of accounting at California Polytechnic State University.

Groupthink occurs when a decision is influenced by the strong expectations of leaders or peers, causing professionals to subjugate their own beliefs and thought process.

"This may be done to avoid conflicts or save time when, for example, there's strong doubt that an account receivable will be fully collectible, but the group doesn't want to record a write-down because of its negative effect on earnings," Mintz said. "The professional feels trapped by the group's prevailing wisdom and decides to 'go along to get along.'

"Sometimes the ethical issues aren't clearly thought through and a rush to solve a problem leads to improper reporting."

Judgment triggers occur because accounting and finance professionals evaluate financial information improperly or fail to perform important steps--for example, accepting easily accessible evidence or the...

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