Financial reporting is much more useful when those preparing the financial statements apply their expertise and judgment in an attempt to reflect the business in the most meaningful way. But in the difficult litigation and regulatory environment that has enveloped the accounting profession most of this decade, many accountants associate applying judgment with playing Russian roulette and would rather follow rules—formal or informal—instead.
I have met preparers of financial statements who have deliberately decided not to “go out on a limb” by using judgment, because of the fear of being second-guessed. Similarly, I have encountered auditors uncomfortable with accounting treatments ...