Addressing Unconscious Bias in Decision Making

According to a recent article in the American Institute of Certified Public Accountants (AICPA) Journal of Accountancy, many professionals, without realizing it, make “unconscious” choices regarding those who are different in terms of race, gender, geographic origin, college education and other factors. This “unconscious bias” is a hidden bias that can significantly undermine good decision making and impacts both personal and business decisions.

How much do you know about unconscious bias? Try a short, 10-question, online quiz to help test your knowledge on the subject. To learn more, watch the following AICPA Unconscious Bias webcast series of three information videos:

• “Help Me in the Heart - Understanding Unconscious Bias”: This session will help participants understand the full scope of what unconscious bias entails, where it comes from, and the areas of business it impacts. 
• “Look Me in the Brain – Identifying Unconscious Bias”: This session will help participants identify personal biases which might be holding us back from true inclusiveness.
• “Fix Me in the Act – Managing Unconscious Bias”: This session will help participants manage biases in a constructive manner to obtain the highest level of inclusiveness and performance. 

In addition, review previous blog postings on “bias” and how it affects the exercise of professional judgment.

Ernst & Young Foundation - Introducing the Professional Judgment Framework to Students

A 2017 brochure prepared by the Ernst & Young Foundation (US) states that “Professional judgment skills have never been more important for professionals to operate successfully in an environment of increasing risk and complexity.” In this regard, the Ernst & Young Academic Resource Center (EYARC) is providing free, leading-edge resources to prepare students for the fast-changing, global marketplace.

Professional Judgment Framework (click to enlarge)

As the above graphic illustrates, the EYARC has developed curriculum materials to introduce the professional judgment framework to students. According to the accompanying User Guide, lecture notes and supplemental curriculum materials allow students to apply the professional judgment framework to a variety of accounting and auditing scenarios. The supplemental materials include an “application template” which serves as a tool to track, organize and evaluate considerations of the judgment framework. For each application scenario provided, this template can be used by the students to support their judgment.

Documenting the rationale and support for important judgments made during the course of the audit is generally required by professional standards. In addition, for preparers, documentation helps support assertions made in the financial statements and supports an effective system of internal control. As such, requiring students to develop a written memorandum will assist in reinforcing the concepts included in the judgment framework and the development of effective writing skills.

Finally, the lecture notes discuss that the overarching considerations for the professional judgment framework are to be continually readdressed throughout the overall judgment process. However, in completing the application scenarios, for simplicity purposes, students will only address the overarching considerations at the beginning of the judgment process.

New Code of Professional Conduct for Ontario CPAs

In a June 2016 communication, the executive of the Chartered Professional Accountants of Ontario (CPAs) stated that: “As CPAs, we hold ourselves to a high standard in everything we do. We conduct ourselves at all times according to the shared values and ideals of our profession, regardless of position, sector or tenure, and we commit to our profession 24 hours a day, seven days a week. That’s why I am pleased to inform you of a new CPA Code of Professional Conduct  that was recently approved by CPA Ontario’s Council and is now in effect. It will be presented to members for ratification at the next Annual General Meeting in September 2016."

"While most members will not be impacted, the new CPA Code recognizes that our membership provides professional services beyond public accounting. Members providing these services may note a number of changes, such as in the Rules that govern relationships amongst professional colleagues and in Rule 210 Conflicts of Interest, as well as greater guidance provided to clarify common areas of confusion."

"As CPAs, we share common interests, ethics and concerns; now, we share a common philosophy, principles and, indeed, rules of the profession. The inclusion of all professional accountants under a common code — one that reflects the most stringent requirements of the legacy bodies — is one of the benefits of unification."

"Though the CPA Code is built upon foundational pillars — the fundamental principles of professional behaviour, integrity and due care, objectivity, professional competence and confidentiality — the whole is greater than the sum of its parts. Our commitment to its principles is not situational; it does not stop at the end of the working day. In short, as CPAs, we live our lives according to our personal values and professional code — the CPA Code of Professional Conduct. Its purpose is clear, its principles timeless, and its vision defines us not only as a profession but as a community."

For an overview of the new CPA Code, refer to the article, A New Code of Professional Conduct, on page 8 of the Spring 2016 issue of the publication Discussion and Analysis, available online.

Chartered Accountants Worldwide welcomes The Institute of Chartered Accountants of India

The Institute of Chartered Accountants of India (ICAI) has joined as an Associate Member of Chartered Accountants Worldwide. During its 66 years of existence, ICAI has achieved recognition as a premier accounting body for its contribution in the fields of education, professional development, and maintenance of high accounting, auditing and ethical standards. Associate Member status is a recognition that ICAI has demonstrated a commitment to the highest professional and ethical standards.

ICAI is the fourth institute to join Chartered Accountants Worldwide as an Associate member, making a key contribution to the global expansion of the organization. The rest of the Chartered Accountants Worldwide family are founder members; Chartered Accountants Australia and New Zealand, Chartered Accountants Ireland, the Institute of Chartered Accountants of England and Wales, Institute of Chartered Accountants of Scotland, The South African Institute of Chartered Accountants, the Institute of Singapore Chartered Accountants (who joined as an Associate Member in June 2015), The Institute of Chartered Accountants of Pakistan (who joined as an Associate Member in February 2016), and the Zambia Institute of Chartered Accountants (who joined in March 2016).

Chartered Accountants Worldwide brings together like-minded Institutes who continuously contribute to the enhancement of the value of the brand and the profession of Chartered Accountants. For more information, read the June 2016 Chartered Accountants Worldwide Press Release.

Professional Judgment: How to Effectively Use Critical Thinking

A training course offered by the Institute of Internal Auditors (IIA) indicates that: “One of the most difficult skills associated with auditing is determining the propriety of audit evidence. Does it support the audit objective? Is it enough? Is it too much and inefficient? How does professional judgment affect the quality and quantity of audit procedures?”

The description of this course indicates it will provide internal audit staff and management with at least 2 years of experience with the techniques necessary to identify the appropriate evidence to support the audit conclusion. The instruction will also suggest approaches to guide the use of critical thinking skills to facilitate the gathering of audit evidence. Real-life examples of strong and weak evidence will further enhance the learning process.

As a complement to this course, another IIA course emphasizes that: “Auditors are expected to be open-minded and analytical thinkers. Decision making skills and professional judgment are a daily necessity in the internal audit process. Teaching auditors to utilize critical thinking skills throughout the audit process strengthens their ability to identify and assess risk, prioritize testing, align audit objectives with business objectives and identify true value-added activities.”

For more information about these 2-day interactive courses, visit the IIA training centre and obtain the course descriptions on Audit Evidence and Professional Judgment: How to Effectively Use Critical Thinking and Embedding Critical Thinking in the Internal Audit Process.

The Role of Auditors’ Emotions and Moods on Audit Judgment

CPA Vision 2011 and Beyond: Focus on the Horizon, published by the American Institute of Certified Public Accountants (AICPA), states that emotional skills are extremely important and interpersonal skills are crucial for success as professional accountants. During the audit process, auditors may experience emotional reactions, such as liking or disliking toward client personnel, or anxiety about components of tasks. Auditors also may also experience different moods while conducting audits. Research reveals that an important consequence of auditors experiencing emotions and moods is that these reactions can influence their decision making and audit judgments.

A recently-published research article summarizes the results and practice implications associated with several studies in a stream of research that has examined the role of emotions and moods in auditing. Research illustrates that auditors can experience emotional reactions toward a client (e.g., likability) or an element of a task environment (e.g., anxiety from dealing with certain types of people or about being held accountable) or general moods unrelated to the judgment context (e.g., bad mood related to the weather), which can result in judgment errors.

The research summarized in this paper reveals the potential for auditors’ judgments to be susceptible to emotional reactions toward client personnel and components of a task, as well as general negative and positive moods. Given the fact that auditors’ emotional reactions and moods are pervasive in the audit environment, such effects appear to be somewhat inevitable. There is a potential for these effects to have significant negative consequences. Therefore, a critical first step is to make auditors aware of the potential for emotions and moods to inadvertently impact their judgments, and how the reactions could impact audit effectiveness and efficiency.

For more information, read the 17-page research paper “The Role of Auditors’ Emotions and Moods on Audit Judgment: A Research Summary with Suggested Practice Implications” by Sudip Bhattacharjee (Virginia Tech) and Kimberly K. Moreno (Northeastern University). A manuscript has been accepted for publication in an American Accounting Association (AAA) journal. This preliminary version of the manuscript was posted in the interest of making the information available for distribution and citation as quickly as possible following acceptance.

Applying IFRS - Online guidance and resource materials

The Chartered Professional Accountants of Canada (CPA Canada) maintain an IFRS web section to provide guidance and support for understanding and applying International Financial Reporting Standards (IFRS). Whether applying an existing standard, searching for information on new standards, preparing financial statements or communicating with clients or lenders about IFRS, check out these free online resources. The Reporting Alerts series summarizes new and revised standards.

In addition, the Viewpoint series discusses circumstances unique to the mining and the oil and gas sectors. CPA Canada and the Prospectors and Developers Association of Canada (PDAC) created the Mining Industry Task Force to share views on IFRS application issues of relevance to junior mining companies. CPA Canada, the Canadian Association of Petroleum Producers (CAPP) and the Explorers and Producers Association of Canada (EPAC) created the Oil and Gas Industry Task Force to share views on IFRS application issues of relevance to junior oil and gas companies. In addition, learn more about the importance of applying professional judgment when preparing or auditing IFRS-based financial reporting.

User-friendly AICPA ethics code on horizon

Ethical decisions often need to be reached quickly, but the AICPA’s Code of Professional Conduct (ethics code) is not structured for quick and easy navigation. A proposed reformatted ethics code is meant to change that. The current ethics code started as eight rules that fit on one sheet of paper and was adopted April 9, 1917, by the American Institute of Accountants, predecessor of the American Institute of Certified Public Accountants (AICPA). Over time, the rules evolved, and in 1973 they were codified into the current Code of Professional Conduct. Almost 100 years later, the ethics code and related guidance are ripe for reorganization.

The AICPA’s Professional Ethics Executive Committee (PEEC) has restructured the Institute’s ethics standards to improve the AICPA Code of Professional Conduct (Code) so that members and others can apply the rules and reach correct conclusions more easily and intuitively. To achieve this, the PEEC restructured the Code into several parts each organized by topic, edited the Code using consistent drafting and style conventions, incorporated a conceptual framework for members in public practice and in business, revised certain Code provisions to reflect the "conceptual framework" approach (also known as the "threats and safeguard" approach) and, where applicable, referenced existing non-authoritative guidance to the relevant topic.

The Proposed Revised AICPA Code of Professional Conduct was exposed for comment on April 15, 2013. Comments on the 237-page Exposure Draft will be accepted until August 15, 2013.  The April 17, 2013 Journal of Accountancy article “User-friendly AICPA ethics code on horizon” explains the new format and the substantive changes to the existing ethics standards.

Accounting in Australia: Bridging the gap between education and practice

Accounting is a vocational discipline and the input of industry and professional bodies is important in the design of accounting programs. In fact, professional bodies have been prescribing a required skill set (Institute of Chartered Accountants in Australia and CPA Australia). As a result, a key focus of the professional accounting bodies and universities is the development of a range of technical and non-technical skills. The Learning and Teaching Academic Standards Statement for Accounting (December 2010) produced as an Australian Learning and Teaching Council (ALTC) standards project emphasized the need for professional judgment, knowledge, application of skills, communication and teamwork and personal management skills. These skills enhance the ability of graduates to apply acquired technical skills in a variety of contexts and situations and equip them with life-long learning skills.

The abstract to a current research article notes that: “Universities are being placed under increasing pressure to produce employable work-ready graduates who are able to cope in a rapidly changing work environment. This has resulted in universities offering their undergraduate students the opportunity to gain business acumen and real world experience by undertaking work-integrated learning (WIL) as part of their learning.”

“This paper proposes a three stage framework [see Figure 2 below] to effectively embed WIL into an undergraduate accounting program. Through careful planning and implementation in three accounting courses, students are encouraged to build essential discipline knowledge and transferable generic skills like communication, teamwork and problem-solving. The WIL framework seeks to narrow the expectations gap between industry, academia and students. It supports the development of graduates who can respond to rapidly changing economic circumstances, making them more employable and adaptable at the workplace.”

For more information, read the research article “A work-integrated learning (WIL) framework to develop graduate skills and attributes in an Australian university’s accounting program” by Raymond Leong and Marie Kavanagh, University of Southern Queensland, Australia. The article was published in the Asia-Pacific Journal of Cooperative Education, 2013 14(1), pages1-14);

Professional Ethics for CPAs in Business

“The AICPA Code of Conduct applies to all CPAs and the aftermath of accounting scandals has created new expectations and federal compliance issues. Those working in business face unique problems and are sometimes faced with ethical decisions that affect their only source of income.”

“The goal of this course is to promote ethical behavior and ethical reasoning and to give CPAs working in business the tools they need to resolve ethical dilemmas in compliance with the AICPA and government regulations. Case studies are the primary learning tool to allow participants to practice their ethical decision-making skills and their knowledge of AICPA rules.”

The AICPA course Professional Ethics for CPAs in Business is available for online access and as a CD-ROM. Choose the best format that best meets your self-study/on-site group study needs. In addition, review other available professional ethics research and guidance.

Pathways Commission Report (July 2012)

The Pathways Commission Report (July 2012) summarizes two years of collective effort by over 50 individuals representing stakeholders in a broadly defined accounting profession – encompassing public and corporate accounting, education, and government. The impetus for this project came from the US Department of the Treasury’s Advisory Committee on the Auditing Profession (ACAP) report recommending that the American Accounting Association (AAA) and American Institute of Certified Public Accountants (AICPA) study the possible future structure of higher education for the accounting profession.

With a mission to consider accounting education and the accounting profession in the broadest sense, the Commission’s recommendations are expansive in scope; they demonstrate the need to address difficult and persistent issues and impediments so that the discipline and profession of accounting can better meet the challenges and opportunities of the future.

The Future Outlook section of the Report (on page 133) concludes that “As accounting and business evolve, the required knowledge and skills will also change. Adoption of more principle-based standards will require more judgment. More judgment may lead to a wider variability in decisions and, possibly, increase the risk of litigation. At the same time, pressures to conform to economic forces may increase. Measurement issues and fair value calculations may enhance financial reporting, but they are also more subject to manipulation. Therefore, responsible judgment becomes even more important as does ethical behavior consistent with the accounting profession’s responsibilities.”

For more information, visit the Pathways Commission Homepage on the website of the American Accounting Association and read the highlights in the Indiana CPA Society blog posting “It Won’t Be Easy, But It’s Worth Doing” dated December 13, 2012.

Ethical Professionalism (Trans)Formation: Themes from Interviews About Professionalism with Exemplary Lawyers

A recent study published in the Santa Clara Law Review defines the educational goal of fostering an ethical professional identity by reporting on an empirical study of the concept of professionalism involving in-depth interviews with peer-honored exemplary lawyers. The purpose is to empirically explore how attorneys define the elements of professional identity and how the exemplar of professionalism differ in their understanding of professionalism compared to early career lawyers or law students.

 

The reason for the second focus is to determine whether there are differences between experts and novices. The existence of a difference is an indicator of developmental capacity or competence, drawing on a methodology in character development research and industrial-organizational psychology. The overarching research question was: How do peer-honored exemplary lawyers understand the meaning of professionalism?

 

This study provides an overview of theoretical perspectives, then reports on the methodological approach and the results of the analysis and interpretation of in-depth interviews, focused around salient themes and issues of relevance to the legal profession. It also discusses interpretations and implications for legal education.

 

The study concludes that: “Empirical evidence over three decades of research shows that ethical professional identity can grow across the lifespan. The exemplars we interviewed represent a benchmark for a high level of competence in professionalism; the finding that this expert group differed from novices supports the contention that growth occurs across the lifespan. With a clear definition, educators can design educational programs, curricula and assessments to foster students’ ethical professional formation. This paradigm shift toward fostering students’ potential for ethical professional formation and transformation is one that will ultimately better meet the needs of the changing nature of the legal job market and law firms because it promotes dynamic change and transformation in a variety of capacities and skills that contribute to effectiveness in the practice of law. The students on this path realize both internal and external benefits.”

 

For more information, refer to the 51-page article by Neil W. Hamilton and Verna E. Monson, Ethical Professionalism (Trans)Formation: Themes from Interviews About Professionalism with Exemplary Lawyers, in the Santa Clara Law Review (Vol. 52, 9-21-2012).