Question

Audit judgments may both be negatively affected by and may benefit from Framing Effects.

a. What are Framing Effects?

b. Give an example of how audit judgments may be negatively affected by Framings Effects

c. Give an example of how audit judgments may be positively negatively affected by Framings Effects

Answer 1

a) Framing effects are the manipulations in the actual results of an entity. These effects can be positive or negative. They affect the decision of the stakeholders and the potential investors. The financial information of an entity is manipulated in such a way that the entity can get its desired results. It can present the financial information and the profits at their desired levels.

b) Audit judgement can be negatively affected by framing effects. For example the sales of a company are manipulated and the auditor did not find any evidence on the basis of which he can doubt on the sales figure. The auditor present a true and fair view on the financial statements. Thus it negatively affect the auditors decision.Also the stakeholders will also be affected by the framing effect.

c) Audit judgement can be positively affect by the framing effects. The auditor can apply different audit techniques to identify the various framing effects. By applying the more audit techniques the reliability on the financial data in increased. Thus the framing effects positively affect the audit judgement.