Question

A firm's pre-audit financial statements report estimated bad debt expense of $5 million. Auditor A views this estimate, and then subsequently estimates that $5.1 million is a reasonable bad debt expense. Auditor B does not view the firm's estimate; she creates her own independent estimate of $7 million bad debt expense. Which common psychological bias has likely affected Auditor A's judgment? Availability bias O Hindsight bias O Confirmation bias O Anchoring and adjustment bias

Answer 1

Correct answer is option d. Anchoring and adjustment bias

Here Auditor A was effected by Anchoring and adjustment bias.In Anchoring and Adjustment Bias a person create a focal point (anchor) and make adjustment such that the result is fall near the focal point (anchor). In the given case focal point is 5 millions of bad debt and adjustment is .1 million.