Comparing Thoughts on Professional Judgment - 1937 and 1988

“Proficiency in accounting work is largely a matter of experience and judgment; the underlying theory of the science is not particularly profound. The test comes when we attempt to apply the general fundamentals to the infinitely varied and complex situations found in the world of commerce. Factual information and accuracy in its procurement are essential, but its value is submerged unless with it is synchronized the development and training of the judgment...the solution of business problems not only calls for an orderly marshalling of facts, but, what is equally important, careful analysis and logical reasoning from such facts, the formation and establishing of effective conclusions and the exercise of sound judgment.” (This quote is drawn from the article by Kris A. Mapp, FCA, "Educating Our Students - What Is Our Responsibility?" Canadian Chartered Accountant, October 1937, page 258.)

“According to the academic research literature, the exercise of professional judgment by those preparing and auditing financial accounting information is at the core of financial reporting. Without the flexibility and the intelligence provided by professional judgment, the complex system of financial accounting procedures, standards and rules would be ponderous, unresponsive, insensitive: in short, unworkable. Financial reporting, as it operates in Canada and elsewhere, requires professional judgment at many levels, in a host of circumstances, and by a variety of skilled and experienced professionals. In fact, professional judgment is an essential part of financial reporting.” (This quote is drawn from the CICA Research Study, Professional Judgment in Financial Reporting, Michael Gibbins and Alister K. Mason, 1988, page 1.)

Can you really teach good judgment? (Part 3 of 3)

Research in the areas of judgment and decision making over the last few decades indicates that additional knowledge about common threats to good judgment, together with processes and tools for making good judgments, can improve the professional judgment abilities of both new and seasoned professionals. The research also confirms that professional judgment in the context of teams or groups is crucial because many important judgments are made in groups.

In learning about group judgments and decisions, three key themes should be kept in mind. First, the same judgment process, such as that illustrated in the KPMG Professional Judgment Framework (available at the KPMG University Connection) applies to both individual and group judgments. Second, it is important to be aware of the judgment traps and biases, and to take steps to mitigate them in group settings. Third, successful group leaders manage group judgment processes by properly structuring the group’s interaction and by effectively managing conflict.

With the movement in financial reporting toward more principles-based standards and more fair value measurements, exercising good professional judgment is increasingly important. It is clear that professionals will be required to apply more and better professional judgment on a consistent basis. As the accompanying exhibit shows, the more critical the judgment, the more rigorous the process and the more time it will take to make good judgments.

Can you really teach good judgment? (Part 2 of 3)

The KPMG monograph, Elevating Professional Judgment in Auditing: The KPMG Professional Judgment Framework (available at the KPMG University Connection) offers a judgment framework. That framework depicts constraints, influences and biases that threaten good judgment, with the box on the outer rim of the framework labeled “Environment” and the triangle at the top labeled “Influences/Biases.” At the bottom are Knowledge and Professional Standards, as these factors provide the foundation for quality judgments. The framework includes a number of components, such as mindset, consultation, reflection and coaching. At the core, there is a five-step judgment process.

The monograph presents simple, but powerful, principles that help overcome common threats to good judgment and that enhance professional skepticism. In addition, it covers several common judgment tendencies and how they can lead to biased judgments, and offers techniques to overcome or reduce the potential impact of these biases. After laying a foundation for individual judgments, the monograph discusses common threats to good judgment in groups, and the techniques that can improve the quality of group judgments.

According to KPMG, the mindset, skills and techniques behind good judgment begin to form at a young age and can be taught and improved with experience and practice. It is critical that accounting and auditing students receive a strong foundation in the fundamentals of professional judgment. KPMG is committed to sustaining an ongoing dialogue about professional judgment. Therefore, it is now taking the important step of sharing and leveraging the content with the key stakeholder groups, including the academic community.

Can you really teach good judgment? (Part 1 of 3)

According to a recent publication, Elevating Professional Judgment in Auditing: The KPMG Professional Judgment Framework, a common question people have is, “Can you really teach good judgment?” Many believe that it is a gift; either you have it or you do not. Others would say you cannot teach good judgment; rather, it must be developed through the “school of hard knocks” after many years of experience. There is no question that talent and experience are important components of effective professional judgment, but it is possible to enhance your professional judgment skills through learning and applying some key concepts. As with other important skills, the sooner you start learning how to make good professional judgments, the better.

The KPMG monograph and related training materials (available at the KPMG University Connection) were developed with the help of two professors from Brigham Young University, Steven Glover and Douglas Prawitt. Their research focuses on the judgment and decision making of accounting and auditing professionals. They have taught graduate (MBA) courses on effective judgment and decision making for many years.

Graduate courses in professional judgment are also being offered at selected Canadian universities, For example, Professor Efrim Boritz teaches a course on Professional Judgment (ACC 690 on pages 90-91) at the University of Waterloo. The course covers a variety of topics, such as: Introduction to Professionalism and Professional Judgment; Being a Trusted Adviser; Methods of Studying Professional Judgment; Bounded Rationality; Heuristics, Framing and Biases; Knowledge, Expertise, Specialization; Ethics, Skepticism and Rules of Professional Conduct; Multi-person Tasks and Professional Judgment; Role of Decision Aids in Professional Judgment; and, Conflicts and Negotiations.