Principles‐Based Reasoning about Accounting Estimates

Smieliauskas, Wally

doi:10.1111/1911-3838.12001

Cited by 12 publications

(6 citation statements)

References 12 publications

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“…The excessive width of the range is consistent with concerns raised in Christensen et al (2012) about the auditability of complex FVs and is not aligned with ISA 540 guidance. The width of the range that is equal to many times the audit materiality is best characterized by Smieliauskas's (2012) “estimate nightmare” scenario, meaning that all points inside or outside of the reasonable range have a significant risk.…”

Section: Fv Audit Competency Requirements and Suggested Enhancements ...mentioning

confidence: 99%

Novice Auditors and Audits of Fair Values: Knowledge and Skill Requirements^*

Boritz,

Timoshenko

2024

Accounting Perspectives

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Novice auditors are increasingly being asked to perform tasks that were not expected of them in the past, including evaluation of fair values (FVs). This study contributes to the auditing literature by investigating novice auditors’ competencies required for correct performance of FV auditing tasks, identifying weaknesses, and suggesting actions that could be taken by educators and practitioners to address those weaknesses. Using the audit of goodwill impairment under IFRS as the exemplar task for identifying FV auditing competencies, we create a normative process table for the task based on accounting and auditing standards and authoritative valuation literature. We analyze the verbal protocols of novice auditors while they perform the task and compare their processes to the normative table to understand weaknesses in their competencies. Our findings are of interest to auditing educators and audit firm personnel responsible for staff training programs, audit program development (e.g., checklists), supervision, and review.This article is protected by copyright. All rights reserved.

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Section: Fv Audit Competency Requirements and Suggested Enhancements ...mentioning

confidence: 99%

Novice Auditors and Audits of Fair Values: Knowledge and Skill Requirements^*

Boritz,

Timoshenko

2024

Accounting Perspectives

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“…This is due to the fact that the IFRS allow preparers to apply judgement in selecting reporting methods, estimates and disclosures that match firms" underlying economics. The use of judgement, however, also presents the opportunity for management to select methods and estimates to achieve desired earnings figure (Smieliauskas, 2012).…”

Section: Literature Reviewmentioning

confidence: 99%

Factors Influencing Professional Judgment of Auditors in Malaysia

Halim¹,

Jaafar²,

Janudin³

2018

IBR

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The purpose of this study was to examine the factors influencing professional judgment of Malaysian auditors. A questionnaire was used to measure the level of professional judgment and factors influencing the judgment such as gender, knowledge, position level, experience and also firm size. The multiple regression results showed that the position level and experience to be statistically significant in determining the level of professional judgment of auditors. Gender, knowledge and firm size have no significant relationship with professional judgment. As for gender, past research has shown mixed results and this study proves that there is no gender differences among Malaysian auditors in terms of their professional judgment. Even though past research has shown that knowledge has a positive relationship with professional judgment, this study finds no significant relationship between the two variables. With regard to firm size, this study finds similar results of prior study that there is no significant relationship between firm size and judgment. In terms of the practical implications, this study provides insights into significant factors that influence professional judgment of Malaysian auditors. Besides, the management of audit firms can place emphasis on establishing training to their employees especially for the junior staff. Exposing junior auditors at the early stage might improve their professional judgment when facing with complexities of assignments.

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“…With such high risks of failing to detect material misstatements across many audit firms, audit risk largely becomes irrelevant as a basis for indicating audit firm quality (Petroni and Beasley 1996). The recently revised ISA/CAS 540.A125 (IFAC 2018b) acknowledges that in some industries, reasonable ranges for estimates may be multiples of materiality, indicating very high accounting risk estimates (see Smieliauskas 2012). Appendix 1 (para.…”

Section: Introductionmentioning

confidence: 99%

“…19 19 Smieliauskas (2012) and Pelger (2020) suggest that levels of uncertainties for accounting estimates could be the basis for determining what should be recorded, disclosed, or ignored for purposes of fair presentation reporting. Such approaches are consistent with the social futures epistemology of Bell and Olick (1989).…”

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confidence: 99%

Elevating Financial Reporting Beyond a Mere Compliance Instrument^*

Smieliauskas

Craig

Amernic

2022

Accounting Perspectives

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We highlight how complying with detailed professional accounting rules can lead to lies and undermine the overall objectives of financial reporting. We do so by conducting a retrospective analysis (using the argumentation concepts of premise, qualifier, data, and conclusions) of the reasoning of the two expert accounting witnesses in the criminal trial in 2006 of Enron's president (Lay) and CEO (Skilling). We make two recommendations that are intended to elevate financial reporting beyond a mere compliance instrument and to help it conform better with the idea of fair presentation. First, we call for the objectives of financial reporting to be installed as the overarching premise in a conceptual framework (CF) for GAAP‐based financial reporting. The remainder of the CF should provide essential guidance to meet those objectives. Second, we recommend that the needs of users of financial reports should be prioritized by developing ethical forecasting principles and better ways of assessing and reporting the accounting estimation uncertainties that are identified in the IASB's (2018) revised CF. We contend that a CF with the more detailed standards should guide professional judgment on the concept of accounting risk and provide guidance on an acceptable level of this risk for various line items on the financial statements. Ideally, accounting risk should be less than 0.50 so that the probability that the reported number is materially accurate is at least 0.50. This requirement is necessary for the various types of accounting estimates to be sufficiently truthful for ethical financial reporting. This will render GAAP and financial reporting more reliant on cogent reasoning and argumentation.

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Principles‐Based Reasoning about Accounting Estimates

Cited by 12 publications

References 12 publications

Novice Auditors and Audits of Fair Values: Knowledge and Skill Requirements^*

Novice Auditors and Audits of Fair Values: Knowledge and Skill Requirements^*

Factors Influencing Professional Judgment of Auditors in Malaysia

Elevating Financial Reporting Beyond a Mere Compliance Instrument^*

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Principles‐Based Reasoning about Accounting Estimates

Cited by 12 publications

References 12 publications

Novice Auditors and Audits of Fair Values: Knowledge and Skill Requirements*

Novice Auditors and Audits of Fair Values: Knowledge and Skill Requirements*

Factors Influencing Professional Judgment of Auditors in Malaysia

Elevating Financial Reporting Beyond a Mere Compliance Instrument*

Contact Info

Product

Resources

About

Novice Auditors and Audits of Fair Values: Knowledge and Skill Requirements^*

Novice Auditors and Audits of Fair Values: Knowledge and Skill Requirements^*

Elevating Financial Reporting Beyond a Mere Compliance Instrument^*