Summary of Why Good Accountants Do Bad Audits

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The main argument of the paper, “Why Good Accountants Do Bad Audits”, is that the provisions of the Sarbanes-Oxley Act (SOX) of 2002 are not sufficient in fixing the problems with the U.S. system of auditing. While SOX aims at eliminating conscious corruption, the authors attribute the problem to unconscious bias, the idea that auditors unknowingly discount facts that contradict the conclusions that would benefit them and embrace evidence that supports their positions. The paper discusses three structural aspects of accounting and three aspects of human nature that create opportunities for bias. Each of these aspects influences the judgments auditors make and can lead even the most honest auditors to unintentionally distort the numbers in ways that mask the company’s true financial position. With these aspects in mind, the authors offer recommendations that would limit the effects of biases including full divestiture of consulting and tax services, prohibit auditors from taking positions with the firms they audit, removing the threat of being fired, and educate auditors so they understand how and why biases effect their decisions. I found the study conducted by Cain et al. on the effects of disclosing conflict of interest very fascinating. I was surprised that disclosure of the advisors motive to mislead the estimators did not cause the estimators to substantially discount their advisor’s advice. I would think that disclosing the advisors motives would have a greater impact on the estimator’s decision. This shows that although auditors are required to reveal conflicts of interest to investors, this information does not necessarily impact the investors’ decisions. I would agree with the authors that the provision to disclose conflicts of interest may worsen the problem rather than fix the problem. It makes sense that if the auditors think their disclosure
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