Essay on An Introduction to Managerial Decision Making
Phar-Mor, Inc., the nation’s largest discount drugstore chain, filed for bankruptcy court protection in 1992, following discovery of one of the largest business fraud and embezzlement schemes in U.S. history. Coopers and Lybrand, Phar-Mor’s former auditors, failed to detect inventory inflation and other financial manipulations that resulted in $985 million of earnings overstatements over a three-year period.
A federal jury unanimously found Coopers and Lybrand liable to a group of investors on fraud charges. The successful plaintiffs contended that Gregory Finerty, the Coopers and Lybrand partner in charge of the Phar-Mor audit, was “hungry for business because he had been passed …show more content…
This book (Chapter 4, specifically) will provide evidence that it is psychologically impossible for auditors to maintain their objectivity; cases of audit failure are inevitable, even from the most honest of firms. Psychological research shows that expecting objective judgment from an auditor hired by the auditee is unrealistic. Although deliberate misreporting can occur, bias more typically becomes an unconscious, unintentional factor at the stage where judgments are made. When people are called upon to make impartial judgments, those judgments are likely to be unconsciously and powerfully biased in a manner that is commensurate with the judge’s self-interest.
Psychologists call this the self-serving bias (Messick and Sentis, 1985). When presented with identical information, individual perceptions of a situation differ dramatically depending on one’s role in the situation. Individuals first determine their preference for a certain outcome on the basis of self-interest and