A Classroom Exercise on Unconscious Bias in Financial Reporting and Auditing

Abstract

In this instructional resource, I describe a classroom exercise in which students witness their own behavioral biases as they arise endogenously within a financial reporting and auditing setting. Students use data from the exercise to identify evidence of unconscious biases in their judgments, to differentiate between unconscious biases in judgment and biases attributable to deliberate gamesmanship, and to consider the importance of making such a distinction. The exercise contributes to accounting and auditing education by illustrating a provocative argument made by Bazerman et al. (1997), that the quality of financial reporting and auditing is affected by unconscious biases in judgment. In addition to identifying biases, students use insights from the exercise as a platform for exploring issues pertaining to the quality of auditing and financial reporting at a deeper level than would otherwise be possible. In light of its short duration (about 30 minutes) and ease of implementation, the exercise is well suited for auditing and financial accounting classes, where topics pertaining to financial reporting and accounting quality are of interest.