With the progressively complex nature of today’s global business practices, it’s important to have reliable financial information for your business. Accountants are professionals and due to the nature of their industry, are expected to apply professional judgment. Having the ability to make a professional judgment is essential for accountants, but it can be challenging,
Professional judgment is a required skill for principles-based accounting strategies, including auditors, preparers and regulators of financial statements. That said, making professional judgment calls can be difficult, and there isn’t necessarily one right answer in most cases. There is a learning curve, but it’s possible to recognize and take the logical steps necessary to better navigate through judgment calls, including asking common sense “what and why” questions.
What is Professional Judgment in Accounting?
Professional judgment is the process of drawing a conclusion or arriving at a decision when there are several possible alternatives to choose from. It is a process that is unbiased, logical, consistent and objective.
Accountants make use of pertinent information and balance intuition, knowledge and experience to make the best call. Unfortunately, many accountants don’t have a thorough process in place and fall into common judgment traps. Many of these judgments end up being shortcuts that can help simplify complex accounting tasks but may lead to less than optimal judgments and can cost your business in the long run.
It’s important that you have a good relationship with your accountant so that you can express your concerns and support for professional judgment with your business tax records. Make sure that every item in question is assessed according to the law. If professional judgment is needed, you should work with your accountant to understand the impact that the decision will have on your business.
Following a Sound Professional Judgment Process
Peace of mind comes when you hire the right people for the right job. Accounting is not easy. Your accountant is responsible for providing regulators, directors, managers, investors and others with reliable, up-to-date, comparable financial and accounting reporting information. It’s important that he or she stays on top of the law, receives the training required to make good business calls and follows a consistent process.
By persistently following a good judgment process, understanding risks and vulnerabilities, and having the right competent accountant on your team, you’ll be able to monitor your company’s risks (including fraud) and strategies. Be consistent in your judgment process. If you chose path A for one item, use the same process for the next one in question. Following an expert judgment process equates to improved risk management and business outcomes.
If you need help creating a consistent, repeatable and efficient judgment process for your business, call me today. I can help you implement the right systems and people to take your business to the next level.