5 Ways Auditors Can Overcome Confirmation Bias

Listen

Narrowly pursuing an investigation into what you initially suspect doesn’t just trip up scientists. Confirmation bias—one of five common judgment biases—has the potential to lead auditors up the wrong path just as easily.

In psychology and cognitive science, confirmation bias (or confirmatory bias) is a tendency to search for or interpret information in a way that confirms one’s preconceptions, leading to statistical errors.

Indeed, jumping to a conclusion is a particularly seductive line of reasoning during the early stages of an audit. At that time, financial information is often highly aggregated and minds trained to see patterns begin to see them. Yet quite often, the data are too ambiguous to allow the auditor to definitively identify the reason for a change in financial information.

This represents a trap, for the deeper one gets into investigating a particular hypothesis, the more difficult it becomes to consider contradictory ones. Rather, it’s common to seek evidence that supports suspicions and overlook data that don’t. Result: You’ve confirmed your bias—bypassing both the scientific method and best practices in auditing.

How to avoid this pitfall? Auditors can take five pragmatic steps to overcome this bias when performing analytical procedures. In fact, following these rules will improve decision making in other areas of the audit, as well:

Don’t Jump to Conclusions

Treat the initial data-gathering stage as a fact-finding mission, without trying to understand the specific causes of any identified fluctuations. That is, resist the temptation to immediately generate potential hypotheses. Wait until a more complete information set has been reviewed. Only then begin to consider reasons the data may differ from expectations.

Brainstorming: The Rule of Three

If possible, identify three potential causes for each unexpected data fluctuation that is identified. Why is three the magic number? Research has shown that auditors who develop three hypotheses are more likely to correctly identify misstatements when performing analytical procedures than those who develop just one hypothesis. From a probabilistic standpoint, the more plausible the expectations brainstormed, the higher the likelihood that the underlying cause of the fluctuation will be identified. However, developing too many initial hypotheses may constrain the auditor’s ability to efficiently evaluate each potential explanation. Research published in the
Journal of Accounting Research in 1999 revealed that auditors who develop three hypotheses are actually more efficient, and just as effective, at identifying misstatements through the use of analytical procedures as those who develop more than three hypotheses.

Flag It

When identifying potential causes of a financial fluctuation, take note of the specific information that triggered a hypothesis. Present those data to a colleague to see whether he or she comes up with similar explanations. If the explanations are different, the colleague has assisted you in expanding your hypothesis set. If the explanations are similar, the colleague has provided you with some validation of your existing set. In other words, two minds can improve your chances of identifying the true explanation for the fluctuation.

Prove Yourself Wrong

It’s natural to seek out evidence that confirms these explanations once an initial set of hypotheses has been developed. However, accepting evidence as support ignores the fact that the same evidence could also indicate a different explanation. In a similar fashion, it’s also common to subconsciously ignore contradictory evidence. This is the heart of confirmation bias. Instead, try to disconfirm your initial suspicions by actively seeking out and weighing contradictory information. Such an approach can only lead to stronger and more definitive conclusions.

Circle Back

After identifying your initial hypotheses, the next required step is to investigate the data further to determine which (if any) is the actual cause of the data fluctuation. While performing this investigation, additional information will invariably be analyzed to confirm or disconfirm these explanations. Don’t forget to revisit old hypotheses and consider fresh ones when examining these new data. Remember that successful hypothesis generation during the performance of analytical procedures is an iterative process.

Suspicions may or may not be confirmed by using these five steps in an audit, but you’ll have certainty about two preconceptions: You’ll have avoided the pitfall of confirmation bias, and you’re far more likely to have discovered the true cause of financial fluctuations.​​​​​

https://www.youtube.com/watch?v=_U2z1gDcQzY

Posted in Insights

More from Insights »

Latest Stories

a row of electricity meters
The Price of Power: What’s Driving Rising Electricity Rates? Electricity rates have been steadily increasing. Ryan Davies, a Babson professor of finance, unpacks the many reasons for that, including the massive data centers popping up across the country.
By
John Crawford
Senior Journalist
John Crawford
A writer for Babson Thought & Action and the Babson Magazine, John Crawford has been telling the College’s entrepreneurial story for more than 15 years. Assignments for Babson have taken him from Rwanda to El Salvador, from the sweet-smelling factory of a Pennsylvania candy maker, to the stately Atlanta headquarters of an NFL owner, to the bustling office of a New York City fashion designer. Beyond his work for Babson, he has written articles and essays for The Philadelphia Inquirer, Notre Dame Magazine, The Good Men Project, and other publications. He can be found on Twitter, @crawfordwriter, where he tweets about climate change.
September 30, 2025

Posted in Insights

The Babson community and mascot celebrate at the Roger Babson statue last year
No. 2 Again: Wall Street Journal Ranks Babson the No. 2 Best College for the Second Year in a Row For the second year in a row, The Wall Street Journal ranked Babson as the No. 2 Best College in the United States, lauding the College for its impressive student outcomes.
By
Eric Beato
Editor / Writer
Eric Beato
Eric Beato is the Editor of Babson Thought & Action and Babson Magazine. A native of Chicago and a graduate of the University of Missouri School of Journalism, Eric has worked as an editor and writer at newspapers across the country, including the Chicago Sun-Times and Boston Herald. Eric joined Babson College in 2019 after working as the communications director for a private educational travel company and as the managing editor of six regional sports publications.
September 29, 2025

Posted in Community, Entrepreneurial Leadership, Insights, Outcomes

First row (left to right): Laura Bautista ’29, Ezel Bhatty ’29, Sydney Fojas ’29; Second row (left to right): Lucas Lebrija ’29, Tia Malhotra ’29, Remy Witt ’29
Class of 2029 Blank Leadership Scholars Bring Excitement to Campus The Class of 2029 Blank Leadership Scholars arrive at Babson equipped with entrepreneurial spirit and social impact experience, from launching nonprofits and tech solutions to championing environmental education.
By
Melissa Savignano
Writer
Melissa Savignano
Melissa Savignano, a content marketing manager at Babson College, has worked in higher education for almost a decade, where she tells authentic, compelling campus and community stories. Before Babson, she managed communications for Boston University’s largest college, the College and Graduate School of Arts & Sciences. She previously worked in client relations, helping brands of various sizes launch content marketing strategies and storytelling initiatives. When not at work, you will find her in the city of Boston, probably at the movie theater.
September 25, 2025

Posted in Community