Auditing The Going Concern Assertion

Category: Accounting

Evidently, people have to deal quickly with incomplete and uncertain information and use it to reach decisions and make judgments, sometimes consciously and more often unconsciously, in order to act in the world. However, perceiving and understanding the social world has to take account not only of basic cognitive processes but also the environment in which social cognition takes place. Indeed, as it can be seen perception is shaped by our knowledge, expectations and assumptions about the way the world is. Furthermore, social psychology prescribes the model of the person as operating like scientists seeking 'truths' in a logical and rational way. Therefore, this essay will outline the conflicting theories and studies that are on offer in relation to this view. It will also examine their limitations and it will vividly conclude that people do not always operate as scientists and they are not rational in the way that was expected in interpreting their social world, perceiving and analyzing information.

Certainly, many researchers have argued that people act as scientists in interpreting their social world. Fritz Heider, for example, argued that people operate like naïve psychologists, an idea which is related to social psychologist's view which often regard people as operating like 'intuitive scientists' seeking for truths in a rational way. More particular, this view means that people try to make sense of the world around them in terms of regularity, predictability and building models of cause and effect in order to control their lives. As it can be seen, Heider applied these ideas to the perception of other people and their actions. In addition, it is crucial to bear in mind that Heider's reference to perception is an interesting argument and specifically his view that in order to understand the social behaviour is necessary to focus on how people perceive and struggle to make sense of their social worlds, usually in terms of cause and effect (Heider, 1958). Hence, the next paragraphs will try to evaluate the view that people act as lay scientists in interpreting their social world and it will also try to identify the extent to which people can be seen rational in perceiving the world.

Definitely, there are situations where people do not behave as some accounts of rationality suggest they would behave. In particular, this can be seen in the findings of Storm's classical study 'The actor/observer effect'. In this study Storm concluded that there are some kinds of biases which involve a difference between the way people explain others behaviour and the way they explain their own behaviour. Specifically, statistical analysis of the findings showed that when people explaining the behaviour of other people they tend to favour internal rather than external attributions, a tendency referred to as the fundamental attribution error (FAE). However, it can be seen that this tendency disappears when explaining their own behaviour as they tend to favour external attributions, a trend referred to as the actor/observer effect (AOE). For instance, observing someone coming in late to work, they would tend to suppose that he is not punctual person but if they were in the same situation, doing the same thing, they would be more likely to explain their behaviour to something external such as missing the bus or another unfortunate event. However, it is important not to overstate this view and note that evidence shows that actors do attribute internal causes to their own behaviour, but tend to attach more weight to external causes and vice versa for observers of other's behaviour.

In contrast, it can be seen that there are conflicting evidence which do not attribute irrationality or biases to some people's actions. More specifically, Jones and Davis (1965) offered a very different explanation of the process by which people attribute; others people's behaviour including their own, to internal and external causes. In this view, they suggested that, wherever possible, people attribute other people's behaviour in terms of internal causes because they regard that internal attributions are more helpful. In particular, they considered that an internal attribution demonstrates something about the person in general and therefore it can imply how they might act in other situations and in the same time it can have greater predictive values. Similarly, this idea shows that people are often more concerned to make sense of the person than simply to explain the particular behaviour whereas an external attribution involves only how the person acts in the present situation. In evaluating these alternative views of Jones and Davis it can be suggested that they do not associate this process in any people's biases or irrationality.

Nevertheless, among the many studies that have been produced are those that support that people do not generally perceive some situations in the same way as scientists and are appeared to be irrational. It can be seen, that some studies such as Slovic (1980) used factor analysis in order to find common belief dimensions which reveal how people perceive a wide range of risks from mountain climbing to exposure to asbestos. This study found three basic concerns the dread, the unknown risk and a third factor, which related primarily to the number of people exposed to a hazard. Therefore, the studies of what people believe about risk revealed much different conceptualization of risk compared with those of experts. It is interesting to see that these beliefs are often very different from the information available in the media and educational literature. This has been proved to be true for technological and health hazards. A striking example here is that of smoking where some people seem to operate irrespective of the empirical evidence. In particular, they believe that smoking won't harm them or they reconsider their belief and support that this next cigarette will not give them cancer. Graham (1987) argued that people know that smoking cause lung cancer but smoke because of the immediate benefit. This immediate benefit makes them overcome long-term potential harm. Obviously, there are remarkable factors that influence perception of risk other than objective probabilities and the harmful costs of those probabilities.

In contrast, various criticisms can, however, be made for the idea that involve irrationality in the way people perceiving and understanding their social world. In the first place, there might be difficulty in the ways that bias and irrationality in human information processing are perceived. Risks for example can be estimated using, mathematics questionnaires and expressed in probability terms, giving an objective or 'correct' answer for judgments. But people do not arrive at the same perceptions and understandings as engineers and health experts, because they don't start from the same place. They seems to have their own ways of perceiving risks and these are considered to be rational in their own terms such as terms of meanings, cultural processes and the functions that these perceptions serve for individual and groups. In addition, as it can be suggested researchers expectations of rationality have included particular descriptions. So, when the empirical findings were not as expected, this was referred to as evidence of failures of cognitive processing or failures of people as they do not operate in the ways they should and therefore people are irrational. It could also be that much of what we interpret as biases in information processing are only seen as failures because of our expectation and that the rationality expected is simply not appropriate to the contexts and demands of everyday life. Moreover, rationality is a property of machines, mathematics and maximization and is not possible to expect people to operate in this kind of prescribed way since people survive and prosper by having their own versions of rationality.

However, some limitations in the experimental methods and studies used might affect any conclusions made. It is thus crucial to refer to these limitations. First of all, numerous of the experimental methods used tend to provide objectively correct and incorrect answers. For example, the risk questionnaires that require a comparison with others have a mathematical notion of correctness and as it can be seen ratings of below average are defined as biased. But in everyday life, correctness' may not be the target and may not even exist. In addition, experimental studies may construct tasks that are low in ecological validity thus leading to apparent ineffectiveness in information processing. For example, driving on a simulator will never carry the risk of driving on the roads. Therefore, the experimental evidence of bias might be due to the low ecological validity of the experimental design. Furthermore, a different picture can emerge about how people think about risk for example, in their own environments and with their own knowledge compared with the responses in the questionnaires. Indeed, experimental social psychology tries to limit these problems and bring the complexity of social perception, cognition and attribution into the laboratory by asking research participants to respond to vignettes constructed by the researcher.

In summary, it can be suggested that people do not always operate as scientists and they are not rational in the way that was expected. This of course, doesn't imply that they always make mistakes just because there are situations where they do not behave as some accounts of rationality suggest they would behave and in relation to social psychology's expectations about objectively correct and logical ways of perceiving the world. Moreover, the wealth of evidence shows that people survive and prosper by having their own versions of rationality and it would be illogical to expect people operating and perceiving their world in particular prescribed ways.