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.
Similarity to Blink
After I got into the book a ways, I realized I’d seen this idea of halo effect before. Check out Malcolm Gladwell’s book Blink.
Here’s a one sentence summary of an illustration from his book: Show a forged painting to art experts and many of them can tell in a glance that it is fake. Have other experts spend hours validating the painting and most experts will conclude it is a fake. The fraud conclusion is reached with hours of analysis by some people or a 2 second glance by others.
That is Gladwell’s Blink. Looks to me like that is also Kahneman’s System 1 at work.
Sometimes it works. Sometimes it fails.
Conclusion
Thinking, Fast and Slow is a superb tool to help us recognize the impact of System 1 & 2. Think of this in terms of fast/slow, intuitive/logical, or emotional/rational.
In general, we need to be aware of those things.
Will I finish reading the book? Yes. Will I learn more about heuristics? I will try. Will I make better audit judgments? I hope so.
We desperately need to gather all the humility we can find so we can constantly be questioning and challenging ourselves to do better.
Mandatory auditor rotation won’t help one bit.
We need to figure out what will. Reading and absorbing ideas from books like Blink and Learning, Fast and Slow would be a good step forward.