The Center for Audit Quality has created an online document to help auditors with the decision-making process so they can form auditing and accounting judgments with the appropriate professional skepticism.
The Professional Judgment Resource aims to assist auditors who are responding to judgment challenges arising from the increasing complexity of business transactions, the development of principles-based (or objectives-based) auditing and accounting standards, the increasing focus on estimates and other highly subjective elements.
The Professional Judgment Resource provides an example of a decision-making process grounded in five essential actions that include identifying and defining the issue and reviewing and completing the documentation and rationale for the conclusion. In addition, the resource identifies several common judgment tendencies and traps that can potentially lead to bias and weaken professional skepticism. It includes illustrative examples of these tendencies, along with strategies to avoid them.
“It is critical for the public and capital markets to have trust and confidence in the reasonableness of judgments made by public company auditors,” said CAQ executive director Cindy Fornelli in a statement. “While there is no silver bullet’ that will eliminate all psychological traps, increased awareness of them can improve an auditor’s decision-making process.”
While the resource was developed with auditors in mind, it can serve as a useful tool for all participants in the capital markets. To access it, click here.