As previously mentioned (see Part 1), the CICA Special Committee on Standard-Setting (SCOSS) presented its Report to the CICA Board of Governors in 1980. The report (pages 11-14) discussed the need for professional judgment in standard-setting, taking a principles-based approach, using principles rather than detailed rules, and clearly stating the role of professional judgment in the CICA Handbook.
The following excerpt from that report discusses the importance of taking a principles-based approach: “Although most standards contain descriptions of the circumstances to which they are intended to apply, these descriptions are necessarily general rather than highly detailed. If a standard covers, as is usually the case, a range of circumstances that, while not identical, are sufficiently similar to be treated uniformly, there will inevitably be situations on the edge of the range whose intended treatment is uncertain. Thus, an accountant may not be able to determine precisely and directly what circumstances were or were not intended by the standard-setting body to be covered in a standard. He must reach such a conclusion indirectly. If, in his professional judgment, the application of a standard to his particular circumstances produces an unfair or misleading result, he would usually infer that the circumstances were not contemplated when the standard was set. [Paragraph A.207]
This conclusion is valid only if the misleading result is the consequence of the particular circumstances and not of the accountant’s personal opinion of the standard itself. He may, for example, disagree generally with a particular standard and believe that it would produce an unfair result in all cases -- but this view of the standard does not put him at liberty to ignore it, since his view has been over-ruled by the standard-setters. It is only when the accountant can reasonably infer that it is the particular circumstances that result in a misleading presentation that deviation from the standard becomes not only permitted but necessary. [Paragraph A.208]
In dealing with situations where no standard apparently applies, it is important that the accountant consider the spirit and apparent intent of the published standards. If strict compliance with a published standard gives an apparently inappropriate result, the accountant should consider what the standard was trying to achieve and why it fails in his case. He may thus identify those changes in treatment necessary to bring the presentation of his particular circumstances within the spirit and principles of the standard. This may be difficult and more than one possible treatment may seem to comply with the spirit of published standards. These problems are both the price and reward of being a professional. The important thing is that the professional not seize on the non-applicability of a standard to adopt solutions completely at variance with the principles on which published standards are based.” [Paragraph A.209]
