Professional Judgment: Examining how accounting professionals make decisions

 

The discipline of accounting and auditing has increasingly recognized judgment and decision making as highly important attributes in the profession because individuals such as managers, auditors, financial analysts, accountants and standard setters make pivotal judgments and decisions.

As an Associate Professor of Accounting at the Edwards School of Business, University of Saskatchewan, Regan Schmidt, Ph.D, CPA, CA, undertakes research on accounting professionals’ judgment and decision making using experimental methods. He currently serves as an Associate Editor for Issues in Accounting Education and is on Editorial Boards for Behavioral Research in Accounting, Accounting Education, and Accounting Perspectives. 

He collaborates with public accounting firms and accounting professionals to improve accounting practices. These collaborations have contributed to advances in the fields of auditing, financial reporting and taxation. His research tries to “understand, explain, predict, and ultimately improve how accounting professionals make judgments and decisions.” Accounting professionals include auditors, financial statement preparers, financial statement users, tax professionals, and others (for example, accountants serving on professional committees). The research primarily uses experimental methods to examine and extend psychology theories in the accounting institutional context.

For more information, refer to the 2019 article by Joelena Leader entitled 

Professional Judgment: Examining how auditors, accountants and professional committees make decisions. Also, read the article Judgment and Decision-Making Research in Auditing and Accounting: Future Research Implications of Person, Task, and Environment Perspective by Rajni Mala and Parmod Chand. The article was published in the March 2015 edition of the Canadian Academic Accounting Association (CAAA) publication Accounting Perspectives which is available at the Wiley Online Library.

Understanding Reports on Financial Statements

 

In January 2020, CPA Canada published guidance to help readers understand the various reports that accompany financial statements. The objective of the Guide is to provide information related to financial statements and the different levels of service a CPA can provide with respect to communications on the financial statements (i.e., an audit, a review or a compilation).

According to the Guide: "Chartered Professional Accountants (CPAs) are valued for their integrity and proven financial expertise. The CPA’s signature on an audit report means the CPA can provide reasonable assurance on the presentation of the organization’s financial position, performance and cash flows." It is important to note, however, that not all financial statements are audited. Many small organizations do not require an audit. Their reporting needs can be met in other ways (for example, through reviews or compilations). 

Whether the CPA is required to perform an audit, a review or a compilation, those who read financial statements and the accompanying communication can be confident the engagement was conducted in accordance with the rules of professional conduct/code of ethics. To learn more, download the 32-page Guide titled Understanding Reports on Financial Statements.

BDO Professional Judgment Framework

 

According to a June 2019 BDO press release, "Professional Judgment can be described as the capacity to logically assess situations or circumstances and to draw sound, objective conclusions that are not influenced by cognitive traps and biases or by emotion. Good judgment takes experience, but it also takes awareness, repetition and consistent application."

The BDO Professional Judgment Framework (shown below) offers a shared conceptual foundation and common vocabulary for audit professionals. It encourages consistent behavior in striving for desired outcomes, supported by justifiable conclusions and effective documentation. As well, it aids in dealing with and clearly communicating complex issues. When all of the elements of the BDO Professional Judgment Framework are effectively in place, they maximize the likelihood of consistently exercising high-quality professional judgment.

To learn more, download the 4-page Mini-Guide or the 40-page Full Conceptual Guide.