Archive for May, 2015

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May
15

The obvious and our blindness

 “We can be blind to the obvious, and we are also blind to our blindness.”

 ~ Daniel Kahneman, winner of the 2002 Nobel Memorial Prize in Economic Sciences and the professor emeritus of psychology at Princeton University in his breathtaking book “Thinking Fast and Slow” (page 24)

Here, the term ‘obvious’ can be explained as something like ~ “missing the woods by focusing on the trees”; and the word ‘blindness’ can be explained as something similar to the phrase ~ “We do not know what we do not know.”

As an internal auditor, one advice which I often receive from all quarters is ‘to keep my eyes and ears open always. In other words, as an internal audit professional, I am expected ‘to be vigilant at all times’. I am expected to ‘smell the rat’ and raise the red flag in every prospective situation. Even the motto of ‘The Institute of Chartered Accountants of India’ (of which I am a member) goes like this: “a person who is awake in those that sleep. For an auditor, there is neither any time out nor a margin for any error. Being alert and vigilant is considered to be one of the indispensable characteristics of an auditor. Therefore, it becomes vital for the internal auditors to understand about those aspects of human perception and cognitive biases that can lead them astray. Invariably, the internal audit professionals need to make the right decisions in every stage/phase of their audit assignment.

In his book ‘Thinking Fast and Slow’, Kahneman presents our thinking process as consisting of two systems. System 1 (Thinking Fast) operates automatically and quickly with little or no effort and no sense of voluntary control. It is unconscious, instinctive and effort-free. System 2 (Thinking Slow) allocates attention to the effortful mental activities that demand it including complex computations. It is conscious, requires deductive reasoning and is a dreadful lot of work. In fact, most of Kahneman’s book is spent on the mistakes made by System 1. Depending mostly on System 1 usually leads to overconfident/ biased/ mistaken decisions. It can be said with assertion that Kahneman’s book is a masterpiece in capturing the mistakes of our conscious and unconscious thinking. It is a clever and intellectually stimulating study of the dual process of model of the brain and our entrenched self delusions.

If we as internal auditors are intentional in overcoming the blindness to obvious and our blindness, we can go a long way in improving our audit efficiency.

Few of the ways could be —

  1. When there is a reason for the auditor involved to be make errors or induced errors due to his/ her self-interest, it is good to prevent such circumstances by making all the auditors sign conflict of interest declaration at regular intervals. Self-deception and rationalization trap the auditors when the conflict of interest exists.
  1. Diversity pays. Numerous researches have established that heterogeneous teams are more successful than homogenous teams in overcoming the ‘groupthink’. Groupthink is especially likely if there is little diversity of background in the team.
  1. As Susan Webber, the founder of Aurora Advisors suggests, it is a good to establish a house skeptic. In my view, the personnel reviewing the work of internal auditors could play this role. As Kahneman puts it, an absence of dissent in a team trying to solve a complex issue should sound an alarm (irrespective of the reason).
  1. While performing audits, internal auditors are often unduly swayed by the first evidence they see. However, all the alternative evidences must be fully evaluated in an objective and fact-based way for the audit process to be robust. When all the audit evidences are properly weighed, it helps us in overcoming the ‘conjunction fallacy’.
  1. Maintaining status quo is often convenient. (Every now and then) Challenging and revisiting our assumptions we make in our work does help. It also aids in preventing us from getting derailed unconsciously.

I began this post with a quote. I would also wish to conclude it with a quote. I feel nobody can put it more succinctly that Tolstoy on what it takes to overcome being blind to the obvious and our own blindness.

“The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him.” ~ Leo Tolstoy, 19th century Russian novelist.

I say unless you are prepared to be wrong, you can never learn.

Question: How can we overcome being blind to the obvious and our blindness in our audit work? Please share them by leaving a comment to this post. I welcome your thoughts.
Reference:
 [1] “Thinking Fast and Slow” by ‘Daniel Kahneman’, Farrar, Straus and Giroux, 2011.
[2] “The Big Idea: Before You Make That Big Decision” by ‘Daniel Kahneman’, ‘Dan Lovallo’, and ‘Olivier Sibony’, Harvard Business Review, 2011
[3] “The Dark Side of Optimism” by ‘Susan Webber’, The Conference Board Review, 2008



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