Question 1

________ are systematic deviations from rationality which can impact judgments on a daily basis.

Accepted Answer

Cognitive biases are systematic patterns of deviation from norm or rationality in judgment, which can affect decisions and judgments in everyday life.

Question 2

Failing to adequately weigh information which is inconsistent with an individual's initial beliefs is known as ________.

Accepted Answer

The confirmatory bias refers to the tendency to favor information that confirms one's preexisting beliefs or hypotheses, while disregarding or undervaluing information that contradicts them.

Question 3

Being more confident than your abilities or experience level warrant is an example of ________.

Accepted Answer

The overconfidence bias occurs when someone's confidence in their judgments or abilities is greater than the accuracy or reality of those judgments or abilities.

Question 4

Weighting one piece of information more heavily than others is an example of ________.

Accepted Answer

The anchoring bias occurs when an individual relies too heavily on an initial piece of information (the "anchor") when making decisions, thus weighting it more heavily than other information.

Question 5

Failing to consider all relevant data, and just using the information most readily available or easily recalled is known as ________.

Accepted Answer

The availability bias occurs when people rely on immediate examples that come to mind when evaluating a specific topic, concept, method, or decision, rather than considering all relevant information.

Question 6

Which of the following situations might influence management to intentionally bias estimates for the financial statements and impede the use of good judgment?

Accepted Answer

Management's bonuses being tied to net income creates an incentive to manipulate financial estimates to increase reported income and achieve higher bonuses.

Question 7

Bill Smith is on assignment for his first audit, when he runs into an accounting practice he's never dealt with before. Rather than asking a more experienced colleague for advice, Bill decides he knows enough to handle it. After all, he passed the CPA exam, didn't he? Bill is exhibiting ________.

Accepted Answer

Bill is exhibiting overconfidence bias, as he believes his knowledge from passing the CPA exam is sufficient to handle a new situation without seeking additional guidance.

Question 8

Documenting the rationale for decisions made can help mitigate cognitive biases.

Accepted Answer

Documenting the rationale for decisions can provide clarity, encourage reflection, and allow for the identification and correction of cognitive biases.

Question 9

The tendency to agree to an answer or choice based on an attempt to avoid conflict represents the overconfidence bias.

Accepted Answer

The tendency to agree to avoid conflict is known as the acquiescence bias, not overconfidence bias. Overconfidence bias involves having excessive confidence in one's own answers or abilities.

Question 10

Riley Watson, lead salesperson for Bowman Industries, begins customer negotiations by proposing an unusually high price. Riley is hoping her customer will exhibit which cognitive bias in the negotiations?

Accepted Answer

Anchoring bias occurs when individuals rely too heavily on the first piece of information offered (the "anchor") when making decisions. Riley is using a high initial price as an anchor to influence the customer's perception of a reasonable price.

Question 11

Auditors should exercise ________ to minimize management bias.

Accepted Answer

Professional skepticism is an attitude that includes a questioning mind and a critical assessment of audit evidence, which helps auditors minimize management bias.

Question 12

Emily Bradly is part of a team at work that has been charged with the responsibility of researching differences between IFRS and U.S. GAAP. The team reaches a consensus on a given topic that Emily does not agree with. Not wanting to enter into a conflict, Emily agrees with the group. What type of bias is represented in the in the above scenario?

Accepted Answer

Groupthink bias occurs when individuals conform to the consensus of a group to avoid conflict, even if they personally disagree.

Question 13

Failure to consider all reasonable alternatives when reaching a group consensus, in an attempt to avoid conflict is an example of ________.

Accepted Answer

Groupthink bias occurs when a group prioritizes harmony and consensus over critical evaluation of alternatives, leading to poor decision-making.

Question 14

Caesar Company needs to purchase a new delivery truck. Rather than taking the time to research which truck would best fit the company's needs, the manager calls his friend to ask which truck he would recommend. The manager is exhibiting ________.

Accepted Answer

The manager is exhibiting availability bias by relying on readily available information from a friend rather than conducting thorough research.

Question 15

Joe Woods is a first-year accountant. When asked to provide data regarding where to purchase new computers for the office, without doing any research, he suggests buying the computers at a store where his friend works. His friend tells him the computers will do what the company needs. In addition, his friend will get a good commission if Joe diverts the purchase in his direction. What type of bias is represented in the above scenario?

Accepted Answer

The answer of Joe Woods is a first-year accountant. When...

Question 16

Cognitive bias is an attitude that includes a questioning mind and critical assessment of evidence.

Accepted Answer

Cognitive bias refers to systematic patterns of deviation from norm or rationality in judgment, which often leads to illogical conclusions or decisions. It is not related to a questioning mind or critical assessment.

Question 17

Ann Byer is a first-year accountant who always did well academically. She is asked by her employer to estimate the amount of the accounts receivable balance that might not be paid by the customers. Although she remembers discussing the concept, she cannot quite remember how to go about estimating the amount. She does what she thinks is correct without double-checking. After all, she always received "A"s in class so she must be correct. What type of bias is represented in the above scenario?

Accepted Answer

Ann's reliance on her past academic success without verifying her current understanding demonstrates overconfidence bias.

Question 18

The confirmatory bias is the tendency to use the data that is most readily available or most easily recalled to make a decision.

Accepted Answer

The confirmatory bias is the tendency to search for, interpret, and remember information in a way that confirms one's preexisting beliefs or hypotheses, not just using readily available data.

Question 19

To mitigate cognitive biases, accountants must be as ________ as possible.

Accepted Answer

Accountants must be objective to mitigate cognitive biases, ensuring that their judgments and decisions are based on facts and evidence rather than personal feelings or opinions.

Question 20

An attitude that includes a questioning mind and a critical assessment of audit evidence is known as ________.

Accepted Answer

Professional skepticism is an attitude that involves having a questioning mind and critically assessing audit evidence.

Quiz 3: Judgment and Applied Financial Accounting Research