Professional Judgment 


    With the increasingly complex nature of global business, the need for reliable, transparent financial information is more pronounced today than ever before. The accounting profession has been and will continue to be on the front lines of the challenge to provide investors, managers, directors, regulators, and others with up-to-date, reliable, and comparable financial reporting information, while the demands placed on the profession are. We expect financial statement preparers to apply judgment in the preparation and auditors to apply judgment in the audit of financial statements in a professional manner. This involves applying relevant training, knowledge, and experience within the context provided by relevant professional and technical standards, as applicable, in making informed decisions about courses of action that are appropriate in the circumstances.

    Several professional organizations have developed informational pieces discussing the need for professional judgment and professional judgment frameworks.

    Public Companies Accounting Oversight Board (PCAOB)

    On December 4, 2012, the PCAOB issued Staff Audit Practice Alert (Practice Alert) No. 10, Maintaining and Applying Professional Skepticism in Audits, which reminds auditors of the requirement under professional standards to apply professional skepticism throughout the audit. The Practice Alert covers the appropriate application of professional skepticism in conducting audits and related considerations for audit firms’ quality control systems. The Practice Alert notes that PCAOB inspections continue to identify circumstance s that suggest auditors did not appropriately apply professional skepticism in conducting the audit.

    The Center for Audit Quality has a members-only alert available with further discussion.

    Institute of Chartered Accountants of Scotland (ICAS)



    ICAS has prepared a report entitled A Professional Judgment Framework for Financial Reporting which discusses the importance of professional judgment in a principles-based accounting standards model, provides guidance for preparers, auditors and regulators, and provides recommendations for standard setters.

    Committee of Sponsoring Organizations of the Treadway Commission (COSO)



    COSO has prepared a document entitled Enhancing Board Oversight: Avoiding Judgment Traps and Biases, which details a five-step judgment process that board members and others can use to overcome common pitfalls and mitigate the effects of judgment bias

    Securities and Exchange Commission (SEC)

    The report, "Final Report of the Advisory Committee on Improvements to Financial Reporting to the United States Securities and Exchange Commission", release August 1, 2008, contains a significant discussion of professional judgment.




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