The 1995 research report Professional Judgment and the Auditor
was prepared by staff of the Canadian Institute of Chartered Accountants (CICA), Research Studies Department (J. Paul-Emile
Roy, CA) under the direction of an 8-member Study Group of professionals. That Report identified many sources of information
regarding the issues surrounding professional judgment. It developed a framework
for professional judgment and discussed key factors that influence the judgment
process.
Furthermore, it provided valuable guidance to practitioners regarding their
professional obligations when exercising professional judgment.
As noted in the previous post “A
Process for Professional Judgment,” the US Center
for Audit Quality (CAQ) has also recently published a Professional Judgment Resource. This Professional Judgment Resource is
designed to provide auditors with an example of a decision-making process to
facilitate important auditing and accounting judgments in a professionally
skeptical manner. This CAQ Resource is aimed at both auditors and audit firms
to enhance their system of quality control. According to the Overview (on page
2): “...the exercise of professional judgment should be: (1) Based on the
relevant facts and circumstances known and available at the time the judgment
is made; (2) Made after the consideration of reasonable alternatives; (3) Sensitive
to the degree of uncertainty that may be inherent in the judgment; and (4) In
compliance with the applicable professional standards.
Effective auditor decision making also requires the
application of professional
skepticism. Indeed, the appropriate exercise of professional skepticism
throughout the judgment process is at the heart of effective auditor decision making.
Accordingly, the CAQ Resource outlines a decision-making process grounded in five
essential actions that include identifying and defining the issue, reviewing
and completing the documentation, and explaining the rationale for the
conclusion. In addition, the Resource identifies several of the more common
judgment tendencies and traps that can potentially lead to bias and weaken professional
skepticism. It also provides illustrative examples of these tendencies and
strategies that can be used to avoid them.
The initial post About this Blog on June 18, 2011 states: “Judgment defines a profession! In fact,
the ability to make good judgment calls is paramount to the success of any
professional. For Chartered Accountants (CAs), sound “professional judgment” is
based on ethical behaviour together with an appropriate foundation of technical
skills and critical thought processes, sustained and enhanced by professional
development.”
It also states: “Professional judgment requires a commitment
to gather all the pertinent facts, the discipline to examine the fact patterns
in relation to a consistently-applied framework, and the willingness to consider
alternative positions. In addition, it requires the application of relevant
knowledge, expertise and practical experience in selecting a rational course of
action.”
In August 2014, the US Center for Audit
Quality (CAQ) published a Professional Judgment Resource that
is entirely consistent with this view of professional judgment. The CAQ is an
autonomous, nonpartisan public policy organization dedicated to enhancing
investor confidence and public trust in the global capital markets. The CAQ
fosters high quality performance by public company auditors, convenes and
collaborates with other stakeholders to advance the discussion of critical
issues requiring action and intervention, and advocates policies and standards
that promote public company auditors’ objectivity, effectiveness and
responsiveness to dynamic market conditions. Based in Washington, DC, the CAQ
is affiliated with the American Institute of Certified Public Accountants
(AICPA).
