Collaboration on Professional Judgment Matters for CAs – Part 1 of 3

A new research report has just been completed on Professional Judgment Matters: Assessing the Merits of Enhanced Communication and Collaboration. The aim is to stimulate dicussion and debate on the exercise of professional judgment by Chartered Accountants.



The executive summary in the report states that: “Chartered Accountants (CAs) practice in a wide variety of fields including public accounting, industry, government, education, research, consulting, regulation and standard setting. In each of these areas, CAs are recognized for their expertise and for their ability to exercise sound “professional judgment” in a multitude of different contexts.

According to the academic research, the value of professional judgment is a function of both its importance and its quality, and each depends on the other. Together, these two attributes provide the foundation for this research initiative, which assesses whether there is a need for enhanced communication and collaboration by CAs on professional judgment matters. In other words, can an Internet-based professional judgment resource centre help to improve the quality of professional judgment? This is in the public interest, as well as the interests of policy developers and the business community. Clearly, it is also in the best interests of the profession. 

This research initiative takes a seven-step approach, as follows:

• Step 1 – Review the definitions of professional judgment (see Chapter 1);
• Step 2 – Review the current research literature (see Chapter 2);
• Step 3 – Create a communications blog (see Chapter 3);
• Step 4 – Open a dialogue with CAs (see Chapter 4);
• Step 5 – Undertake an Internet-based survey (see Chapter 5);
• Step 6 – Review recent developments and other matters (see Chapter 6);
• Step 7 – Suggest practical ways to move forward (see Chapter 7).

Chapter 1 explains the purpose, methodology and anticipated outcomes of this research initiative. It also provides several definitions proposed in the literature and professional standards with regard to professional judgment. In addition, it concludes that Chartered Accountancy meets the criteria for a “profession” because:

• there is mastery by the practitioners of a particular intellectual skill, acquired by lengthy training and education;
• there is a specialized code of ethical conduct, laid down and enforced by that society or institute, designed principally for the protection of the public; and
• there is a belief, on the part of those engaged in the calling, in the virtue of interchange of views, and in a duty to contribute to the development of their calling, adding to its knowledge and sharing advances in knowledge and technique with their fellow members.

In light of these criteria and others, it is apparent that sound “professional judgment” should be based on ethical behaviour together with an appropriate foundation of technical skills and critical thought processes, sustained and enhanced by professional development. In addition, it requires the application of relevant knowledge, expertise and practical experience in selecting a rational course of action.”

Additional excerpts from the executive summary are provided in Part 2 and Part 3 of this series of posts.

Accountants’ Insecurity Relating to Work Diversity

Chartered Accountants (CAs) practice in a wide variety of fields. This requires different competencies and implies the application of professional judgment in a multitude of different contexts. However, academic research provides evidence that, shortly before the collapse of Enron, experienced CAs were appreciably insecure about their professional identity and the appropriateness of the basic principles of their system of expertise. According to the research findings: “Interviewees were uncomfortable with the realities of auditor independence, were doubtful of the future of the profession, and had difficulties in describing the key features of a typical professional accountant in a context where accounting firms and individual accountants become involved in domains conceptually far removed from accountancy’s core domains.”

The research paper reported that: “...expert accountants did not trust to a high degree their system of expertise. Furthermore, our interviews suggest that through their reflexive abilities, accountants interpreted a number of their daily working experiences as being inconsistent with the routine and procedural application of accounting/auditing knowledge, thereby generating doubts about several of the key premises that underlie accounting expertise. As a result, interviewees had inconsistencies in the biographies of their professional lives; they saw the role of the firms and that of the professional institutes to be antagonistic. However, although doubts about the profession’s system of expertise regularly emerged from interviewees’ daily experiences, interviewees were not affected by these doubts to the point of being incapable of continuing their working lives as CAs or of engaging in radical reform initiatives.”

The research paper concludes that: “...All of this leads us to suggest that professional institutes establish channels for rank and file members to communicate concerns emerging from reflexive interpretations of daily experiences, and adopt mechanisms to examine these concerns and formulate, if necessary, proposals for institutional change. Like most modern institutions, professions seek to exclude from their members’ lives fundamental issues that cast doubt on the premises of their systems of expertise.”

The paper further concludes that: “Although suspicious and dissenting voices may be costly to deal with in the short term, it seems to us that providing conduits for members’ concerns and adopting a process to examine them might translate into professions having standards that better respond to the needs of society. These changes might also result in practitioners being better equipped to deal with situations in which they feel insecure, and perhaps avoid the occurrence of corporate scandals where auditors are blamed for not having issued qualified reports. Unfortunately, it seems that it takes a crisis of legitimacy on the scale of Enron to enact change.”

To learn more about this research, refer to the research paper “Professional Insecurity and the Erosion of Accountancy’s Jurisdictional Boundaries” by Yves Gendron, Ph.D, CA, University of Alberta  and Roy Suddaby, Ph.D, University of Iowa, Canadian Accounting Perspectives, Vol. 3 No. 1 (2004) pp. 85–115.

Learning about Professional Skepticism – Part 3 of 3

What does it mean to be sceptical? What does it mean to cast doubt on something you feel is not right, despite popular consensus? Scepticism may be generally defined as a personal disposition toward doubt or incredulity of facts, persons, or institutions.

For a general overview of sketicism, watch the YouTube video "What is Skepticism? A primer for understanding reality."

For an indepth analysis, refer to the research paper "A Model and Literature Review of Professional Skepticism in Auditing" by Mark W. Nelson, Auditing: A Journal of Practice & Theory, Vol. 28, No. 2, November 2009, pp. 1–34. This paper reviews research that examines professional skepticism in auditing. Consistent with much research and with recent regulatory concerns, the paper defines professional skepticism as "indicated by auditor judgments and decisions that reflect a heightened assessment of the risk that an assertion is incorrect, conditional on the information available to the auditor."

In many circumstances the assertion in question will be a client’s assertion that the financial statements are free of material misstatement, but the definition could apply to other assertions as well (e.g., attesting to the effectiveness of a client’s internal controls). This definition reflects more of a "presumptive doubt" than a "neutral" view of professional skepticism, implying that auditors who exhibit high professional skepticism are auditors who need relatively more persuasive evidence (in terms of quality and/or quantity) to be convinced that an assertion is correct. Depending on how an auditor's decisions are evaluated, it is possible under this definition for an auditor to exhibit too much professional skepticism, in that they could design overly inefficient and expensive audits.

The paper provides a model that describes how audit evidence combines with auditor knowledge, traits, and incentives to produce judgments that reflect professional skepticism. The model also describes how, given a judgment that reflects some level of professional skepticism, the judgment combines with auditor knowledge, traits and incentives to produce actions that reflect relatively more or less professional skepticism. The model highlights that auditors’ pre-existing knowledge, traits and incentives all combine (and potentially trade off or interact) to affect the amount of professional skepticism in audit judgment and audit actions. This perspective also facilitates understanding how audit firms can influence professional skepticism in practice via hiring, training, performance appraisal, review, decision aids, incentives and changes in tasks and institutions.