The Center for Audit Quality has developed and released a teaching tool meant to help auditors arrive at sound judgments, despite pressures in the marketplace that make it difficult.

The Professional Judgment Resource is a 25-page guide that gives auditors an example of a decision-making process intended to steer auditors toward judgments that are more skeptical. It walks an auditor through five critical actions—identifying and defining the issue, gathering facts, performing the analysis, making a decision, and documenting the decisions and the rationale behind it. It also explains some common judgment tendencies that can potentially lead to bias and hinder skepticism, with examples and 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. “While there is no ‘silver bullet’ that will eliminate all psychological traps, increased awareness of them can improve an auditor’s decision-making process.”

On various fronts, auditors are faced with increasingly difficult judgments, the CAQ says. Standards are more principles-based with less objective criteria to follow. Auditors are expected to arrive at consistent decisions when faced with similar circumstances. Business transactions and accounting standards are more complex. Subjective elements of financial reporting are getting more scrutiny, and inspection scrutiny is increasing. The resource maps out a suggested decision-making process meant to facilitate sound judgments under such conditions.

The CAQ resource calls to light some of the human tendencies that can derail a sound professional judgment and cloud it with bias—a point raised often by the Public Company Accounting Oversight Board through inspections and various rule-making initiatives. They include, the PCAOB says, confirmation, over confidence, anchoring, and availability.

Confirmation is a trap where auditors might give more weight to information that confirms an initial expectation or belief. Over confidence means overestimating the auditor’s own ability to perform tasks or make assessments. Anchoring means holding too close to an initial starting point without sufficiently adjusting away from it. Availability means relying too much on what’s readily or easily available. The CAQ resource walks through examples of each and explains how to avoid each scenario.

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