Cognitive Biases Influencing Accounting Estimates and Audit Evaluations

Abstract

This research investigates the underexplored intersection of cognitive psychology
and accounting practice, specifically examining how systematic cognitive biases influence the formation of accounting estimates and subsequent audit evaluations. While
traditional accounting research has focused on technical standards and economic incentives, this study adopts a novel interdisciplinary approach, applying frameworks
from behavioral economics and cognitive science to professional judgment in financial reporting. We identify and analyze five specific biases—anchoring, confirmation
bias, overconfidence, availability heuristic, and representativeness heuristic—that persistently affect accountants and auditors despite professional training and standards.
Through a mixed-methodology design incorporating controlled experiments with practicing professionals and archival analysis of restatements, we demonstrate that these
biases significantly alter point estimates, increase estimation ranges, and reduce the
effectiveness of audit challenge. A key finding is the ’professional shield’ paradox:
expertise and experience, while reducing some simple errors, can entrench certain biases, particularly overconfidence and confirmation bias, making them more resistant to
standard auditing procedures. The study proposes and tests a novel debiasing intervention framework, the ’Cognitive Checkpoint Protocol,’ which integrates structured
reflection and counterfactual reasoning into existing audit workflows. Results indicate
a statistically significant reduction in bias-induced estimation errors when the protocol
is applied. This research contributes original insights by moving beyond a normative
model of rational judgment, providing empirical evidence of predictable irrationality
in accounting, and offering a practical, theory-informed tool to enhance the quality of
financial reporting and audit assurance.