In theory, auditing should be unbiased and independent. In reality, biases abound. Auditors are human, and companies — even auditing firms— have agendas that shape how they approach audits. These blind spots can have real consequences for investors and the economy. Associate professor Minlei Ye joins Executive Summary to reveal where these hidden biases come from, how they influence decision-making, and why stronger safeguards and a shift in business thinking are essential for fairer results.

Show notes

[0:00 ] What happened with Enron and Arthur Andersen 

[0:53 ] Meet Minlei Ye, an associate professor of accounting at the University of Toronto, and she says when audits fail to catch red flags, it can have devastating consequences on individuals and the economy.

[2:22 ] What is the role of an auditor, exactly? 

[2:59 ] What role did auditors play in the Enron and Lehman Brothers scandals?

[4:49 ] How can an organizational focus on compliance lead to misrepresentation? And is fair representation a better option?

[6:03 ] Other systemic biases that shape an audit firms’ accuracy include the need to keep the client happy.

[6:42 ] Auditors’ personal biases – like familiarity bias, confirmation bias and groupthink also shape how accurate an audit will be. 

[7:38 ] Minlei’s research into otherwise positive programs – like rewards for whistleblowing – can have unintentional consequences on how auditors approach a client. 

[9:01 ] And then there are egos – like when bosses pull superstar employees off key client accounts out of fear the superstar will be poached by another firm. 

[9:45 ] Team makeup – whether homogenous or diverse – matters too. 

[10:40 ] Auditing is built on the fundamental principle of independence. 

[11:29 ] To help mitigate some of the aforementioned biases, regulation is needed to protect that independence. But, in the U.S. in particular, those protections are under attack. 

[13:00 ] In the meantime auditing firms need to step up to protect their independence…and so do the companies being audited. 

[14:21 ] “Instead of looking at auditing as something that they have to do, like a compliance thing that you have to hire the auditor, they can think of the auditor as a strategic safeguard for the capital needs, for their reputation and stakeholder trust.”

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