As previously mentioned (see Part 1, Part 2 and Part 3), 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 need to clearly stating the role of professional judgment in the CICA Handbook: “In paragraph A.202 of the foregoing discussion [see Part 1] we pointed out that the role of professional judgment has not, in our view, been adequately spelled out by the profession. Section 1500.06 of the Handbook contains the words “No rule of general application can be phrased to suit all circumstances or combinations of circumstances that may arise and the determination of what constitutes fair presentation or good practice in the particular case requires the exercise of professional judgment.” These words, however, are not italicized and hence they constitute explanation rather than a “Recommendation” or standard. Their implications are not further developed in the Handbook and are certainly not completely clear. In fact, another Section of the Handbook that related to the interaction of professional judgment and accounting standards (Section 5500.20) has recently been removed from the Handbook and not replaced. [Paragraph A.301]
We believe that the lack of an explanation of the role of professional judgment in the Handbook is a serious defect. In the foregoing discussion, we presented a view of the role of professional judgment that would, if adopted by the profession, give it much greater importance. We acknowledge, as we also stated in paragraph A.203 [see Part 1], that this view might not reflect a consensus in the profession, even though it does reflect our view as a committee. [Paragraph A.302]
However, regardless of whether our view on professional judgment is accepted, we remain convinced that the role of professional judgment should be stated clearly in the Handbook. Therefore, we present as our first recommendation:
Recommendation 1. The Role of Professional Judgment
THE ROLE OF PROFESSIONAL JUDGMENT IN THE INTERPRETATION AND APPLICATION OF ACCOUNTING AND AUDITING STANDARDS SHOULD BE EXPLAINED CLEARLY IN THE HANDBOOK.” [Paragraph A.303]
