why good accountant do bad auditing? I need half page summary ATTACHMENT PREVIEW Download attachment why good accountants do bad auditing – article.pdf HARVARD BlISINLSS RLVIEW Why Good Accountants Do Bad Audits by Max H. Bazerman, George Loewenstein, and Don A. Moore O N JULY 30, at a ceremony in the East Room of the to deliberate corruption would be to believe that the White House attended by congressional leaders accounting profession is rife with crooks-a conclusion of both parties, President George W. Bush signed that anyone who has worked with accountants knows is into law the Sarbanes-Oxley Act of 2txi2 addressing coruntrue. The deeper, more pernicious problem with corporate accountability. A response to recentfinancialscan- porate auditing, as it’s currently practiced, is its vulnerdals that had begun to undermine citizens’ confidence in ability to unconscious bias. Because of the often subU.S. business, the wide-ranging act flew through the House jective nature of accounting and the tight relationships of Representatives and Senate in record time and passed between accounting firms and their clients, even the in both chambers by overwhelming majorities. The act most honest and meticulous of auditors can unintentionplaces new legal constraints on execually distort the numbers in ways tives and gives expanded protections that mask a company’s true finanto whistle-blowers. Perhaps most imcial status, thereby misleading invesThe real problem portant, though, it puts the accounttors, regulators, and sometimes maning industry under tightened fed- isn’t conscious corruptioa agement. Indeed, even seemingly eral oversight. It creates a regulatory scandals, Ifs unconscious bias. egregious accounting of Enron, such board-with broad powers to punish as Andersen’s audits may corruption-to monitor accounting have at their core a series of unconfirms, and it establishes stiff criminal penalties, including sciously biased judgments rather than a deliberate prolong jail terms, for accounting fraud. "The era of low stan- gram of criminality. dards and false profits is over," Bush proclaimed. Unlike conscious corruption, unconscious bias cannot be deterred hy threats of jail time. Rooting out bias, or If only it were that easy. at least tempering its effects, will require more fundaGiven the vast scale of recent accounting scandals and mental changes to the way accounting firms and their their devastating effects on workers and investors, it’s not clients operate. If we are really going to restore trust in surprising that the government and the public assume the U.S. system of auditing, we will need to go well bethat the underlying problems are corruption and crimiyond the provisions of the Sarbanes-Oxley Act. We will nality-unethical accountants falsifying numbers to proneed to embrace practices and regulations that recognize tect equally unethical clients. But that’s only a small part the existence of bias and moderate its ill effects. Only then of the story. Serious accounting problems have long can we be assured of the reliability of thefinancialreports plagued corporate audits, routinely leading to substanissued by public companies and ratified by professional tial fines for accounting firms. Some of the errors, no accountants. doubt, are the result of fraud. But to attribute most errors NOVEMBER 2002 Why Good Accountants Do Bad Audits How can such an impulse toward self-serving bias be moderated? In follow-up experiments, the same researchers tried to reduce participants’ bias by paying Psychological research shows that our desires powerfully them to accurately predict the amount of the judge’s influence the way we interpret information, even when award and having them v^rite essays arguing the other we’re trying to he objective and impartial. When we are side’s point of view. Neither strategy reduced bias; particmotivated to reach a particular conclusion, we usually ipants consistently thought that the judge would aw