Understanding Auditor Judgment and Decision-Making Research

 

“Critics argue that audit research rarely impacts practice, in part due to challenges associated with synthesizing and interpreting research.”

According to the authors of a 2018 academic research article, using the Elaboration Likelihood Model (ELM) as a metatheoretical framework can help in understanding the collective findings within auditor judgment and decision-making (JDM) research. The goal was to demonstrate the utility of the ELM by interpreting the results of two samples of studies on client cooperation and auditors’ moods. The synthesis of client cooperation studies suggests cooperation on a current issue affects auditors’ judgments only when auditors lack motivation to think carefully about the task. In contrast, a history of client cooperation tends to bias even highly motivated auditors’ judgments. Furthermore, the synthesis of mood studies suggests motivational interventions are necessary, but not sufficient, to mitigate mood’s effects on judgments. The ELM interpretations offer theoretical explanations for seemingly unrelated predictions and findings that can inform future research and practice.

 

For more information, refer to the research article titled The Elaboration Likelihood Model: A Meta-Theory for Synthesizing Auditor Judgment and Decision-Making Research by Emily E. Griffith (University of Wisconsin–Madison), Christine J. Nolder (Suffolk University) and Richard E. Petty (The Ohio State University). The article was published by the American Accounting Association in Auditing: A Journal of Practice & Theory, Volume 37, Number 4, November 2018, pp. 169–186.

Professional Judgment and Skepticism in Review Engagements

In 2016, the Chartered Professional Accountants of Canada (CPA Canada) published the Guide to Review Engagements as non-authoritative guidance. Chapter 3 of the Guide (page 26) notes that “Professional judgment involves the application of relevant training, knowledge, and experience (within the context provided by the assurance, accounting, and ethical standards) in making informed decisions about the courses of action that are appropriate in the circumstances.”

Professional judgment requires practitioners to apply their training, knowledge, experience and professional skepticism to the known facts and circumstances of the particular engagement. Where necessary, the appropriate consultation with others will help to make sure that reasonable judgments are made. In Chapter 3 of the Guide, Exhibit 3.1-4a (pages 27-28) provides some examples of the use of professional judgment in a review engagement and some points to consider in the documentation of such judgments.

Chapter 3 of the Guide (page 22) notes that “Professional skepticism is an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and being capable of critically assessing evidence. Professional skepticism enhances a practitioner’s ability to identify and respond to conditions that may indicate possible misstatement.” The main elements of professional skepticism are summarized in the following exhibit.

 

For additional insight, refer to the article published by CPA Ontario on The Importance of Professional Judgment and Professional Skepticism in Conducting a Review Engagement.

Professional Judgment: Examining how accounting professionals make decisions

 

The discipline of accounting and auditing has increasingly recognized judgment and decision making as highly important attributes in the profession because individuals such as managers, auditors, financial analysts, accountants and standard setters make pivotal judgments and decisions.

As an Associate Professor of Accounting at the Edwards School of Business, University of Saskatchewan, Regan Schmidt, Ph.D, CPA, CA, undertakes research on accounting professionals’ judgment and decision making using experimental methods. He currently serves as an Associate Editor for Issues in Accounting Education and is on Editorial Boards for Behavioral Research in Accounting, Accounting Education, and Accounting Perspectives. 

He collaborates with public accounting firms and accounting professionals to improve accounting practices. These collaborations have contributed to advances in the fields of auditing, financial reporting and taxation. His research tries to “understand, explain, predict, and ultimately improve how accounting professionals make judgments and decisions.” Accounting professionals include auditors, financial statement preparers, financial statement users, tax professionals, and others (for example, accountants serving on professional committees). The research primarily uses experimental methods to examine and extend psychology theories in the accounting institutional context.

For more information, refer to the 2019 article by Joelena Leader entitled 

Professional Judgment: Examining how auditors, accountants and professional committees make decisions. Also, read the article Judgment and Decision-Making Research in Auditing and Accounting: Future Research Implications of Person, Task, and Environment Perspective by Rajni Mala and Parmod Chand. The article was published in the March 2015 edition of the Canadian Academic Accounting Association (CAAA) publication Accounting Perspectives which is available at the Wiley Online Library.