Jim Ulvog

This post wraps up a long discussion of the impact on audit judgment from the halo effect. You can read parts 1, 2, 3, and 4. 

In case you haven’t read the previous posts, I think mandatory auditor rotation is a lousy idea that won’t have any impact on audit quality.

The halo effect, though, is something real and we auditors need to know about it.

This series of posts is reacting to Thinking, Fast and Slow by Daniel Kahneman.  My pondering was prompted by a post from Tom Selling that I discussed here.

…

I started a discussion here about whether the halo effect on auditors is so strong that mandatory auditor rotation is needed to get good audits. Continued in part 2 and part 3.

Counter pressures

There are a lot of counter pressures to encourage auditors to be diligent and do a good job.  Here’s a short list: …

If auditors won’t audit, mandatory rotation won’t help. Part 4Read More »

I have a discussion here and here about whether the halo effect on auditors is so strong that mandatory auditor rotation is needed to get good audits.

How the design of audit helps counter the halo effect

After reading much of Mr. Kahneman’s book, I would suggest that an audit is designed to counter the System 1 / System 2 biases.

…

If auditors won’t audit, mandatory rotation won’t help. Part 3Read More »

I read an unsettling post by Tom Selling, “Thinking, Fast and Slow” about Auditing, which made an interesting argument in favor of auditor rotation.  Essence of the concept deals with the halo effect.  His post got me to thinking.  Mentioned my discomfort here.

In a sentence, the halo effect in the audit context is unconsciously concluding that management is right this time because they were right so many times before and therefore the halo effect biases auditor’s judgment so severely that mandatory audit rotation in needed to get good audits.

I’ve read a large portion of the book and have resolved my discomfort.

If auditors won’t audit, in other words if they don’t take their work seriously and try to do a good job, mandatory rotation won’t change anything. Neither will disclosing the name of the partner, nor disclosing the names of the audit team, nor increasing penalties from the SEC, nor increasing auditor liability.

…

If auditors won’t audit, mandatory rotation won’t help. Part 1Read More »