The American Institute of Certified Public Accountants (AICPA) has created a section of its website that addresses Professional Judgment. It states that: “With the increasingly complex nature of global business, the need for reliable, transparent financial information is more pronounced today than ever before. The accounting profession has been and will continue to be on the front lines of the challenge to provide investors, managers, directors, regulators, and others with up-to-date, reliable, and comparable financial reporting information... We expect financial statement preparers to apply judgment in the preparation and auditors to apply judgment in the audit of financial statements in a professional manner. This involves applying relevant training, knowledge, and experience within the context provided by relevant professional and technical standards, as applicable, in making informed decisions about courses of action that are appropriate in the circumstances.”
A number of organizations have developed guidance discussing the need for professional judgment and professional judgment frameworks. For example, the Institute of Chartered Accountants of Scotland (ICAS) has prepared a report entitled A Professional Judgement Framework for Financial Reporting: An international guide for preparers, auditors, regulators and standard setters which discusses the importance of professional judgment in a principles-based accounting standards model, provides guidance for preparers, auditors and regulators, and provides recommendations for standard setters. In addition, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) has prepared a document entitled Enhancing Board Oversight: Avoiding Judgment Traps and Biases, which details a five-step judgment process that board members and others can use to overcome common pitfalls and mitigate the effects of judgment bias.
