Guidance for Applying a Professional Judgment Framework

Enhanced Communication and Collaboration
on Professional Judgment Matters

In 2011, the Institute of Chartered Accountants of Scotland (ICAS) sponsored the research report Professional Judgment Matters: Assessing the Need for Enhanced Communication and Collaboration. This guidance blog is an integral part of that research report which is available on Google Docs and on the Social Science Research Network (SSRN). The ICAS then published A Professional Judgement Framework for Financial Reporting in 2012. It was primarily targeted at accountants (both preparers and auditors) determining the appropriate accounting treatment for particular transactions.

In 2016, the ICAS released a new, up-to-date publication  A Professional Judgement Framework for Financial Reporting Decision Making to replaces the 2012 edition. It offers practical guidance for decision makers involved in narrative and financial reporting. The new edition has been broadened to make it more universally applicable to decision makers involved in financial reporting, whether accountants or nonaccountants, in the private or not-for-profit sectors. It also includes a new section on audit committees and further context on ethical decision making. Furthermore, the 2016 edition is shorter and more interactive for online readers.

The ICAS firmly believes that a principles-based approach to standard setting is a key driver of quality reporting. Therefore, the guidance includes recommendations for standard setters to ensure that standards provide the appropriate scope for professional judgment.

In this regard, it is entirely consistent with the 1995 Research Report Professional Judgment and the Auditor 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. The 1995 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. In addition, it provided valuable guidance to practitioners regarding their professional obligations when exercising professional judgment. Other blog postings regarding a “professional judgment framework” may also be useful for improving decision-making.

Ethics – the only way is the right way!

A recent article by Chartered Accountants Worldwide notes that “A Chartered Accountant’s training imbues them with values and ethics that help them to resist external pressure and to do the right thing at all times.”

As Chartered Accountants (CAs), we should always live by a set of core values that motivates us to do the right thing, and be vigilant and accountable always. This grounding becomes increasingly important given the ethical challenges facing a Chartered Accountant, as the person who must deliver the business results. If the business isn’t delivering what it hopes to achieve, then there might be pressure to make them look better than they are. The situation is more complicated because of the subjectivity involved in preparing financial statements. There is pressure to reflect positive results, so a CA is always under pressure to produce favourable results. It is important for CAs to stick to the code of conduct and behave in an ethical manner.

Ethical questions aren’t limited to presenting financial results. Tackling difficult situations calls for strong character as a business leader. You need to be able to say no, you need to be able to ask tough questions and make difficult decisions - and you need to do what is right. Chartered Accountants must uphold the values they learn during their training. They have a responsibility and integrity to upkeep…It’s important to have this inner compass to be true to this belief and be able to overcome the pressures from the other people who expect us to compromise on this integrity.

To learn more, read the article “The only way is ethics: how Chartered Accountants can steer firms the right way” and listen to the YouTube videos presenting what other CAs have to say about ethical matters. Also, refer to previous blog postings on “ethics and professional judgment.”