PROFESSIONAL JUDGEMENT IN ACCOUNTING: CONTENTS AND CONDITIONS OF APPLICATION

Olena Fomina,Svitlana Korol,Olha Romashko,Oleksandr Zadniprovsky

doi:10.3846/btp.2022.13330

Abstract

The article considers the theoretical prerequisites and regulatory requirements that determine the practical approaches to the application of professional judgment in defining the best way to present reporting information. In the course of the research, the authors took as a basis the regulatory documents on the preparation of financial and integrated reporting, which take a principles-based approach and provide for the use of professional judgment. The authors assumed that the objects of a professional accountant are the facts of economic activity in order to identify, evaluate, recognize and reflect in the accounting and reporting of the company objects of accounting that are significant and of interest to users. The author investigated theoretical bases and practical aspects of application of professional judgment with the purpose of recognition of object and definition of its cost in the course of data collection, their analysis, and formation on their basis of professional judgment. The author has proved the need to adhere to the principle of additionality in finding the maximum complete description of the object and formulating a professional judgement about it. The author proposed a matrix model, which established the correspondence of risk levels and principles of application of professional judgment in accounting valuation and conducted an analysis of the conditions for the use of professional judgment in defining the fair value of financial instruments and inventories. The author considered the influence of uncertainties and corresponding risks in the application of professional judgment on the value of financial instruments and its adjustment in the conditions of unstable markets of countries with economies in transition. The author noted peculiarities of implementation of professional judgment in the process of preparation of financial and integrated reporting and the factors that determine them.

Highlights

The globalization of economic systems and the rapid development of information technology have led to the transformation of the accounting paradigm in most countries, the exit from the broad regulation system, and the formation of an accounting reporting system based on principles
The Institute of Certified Public Accountants has prepared a Guidance on Professional Judgment for CPAs, where the term “professional judgment” is considered as “the application of relevant training, knowledge, and experience, within the context provided by auditing, accounting, and ethical standards, in making informed decisions” (The Chinese Institute of Certified Public Accountants, 2016)
– The applied approach to professional judgment is based on the concepts of accounting and reporting proposed by the IAS and International Integrated Reporting Framework (IIRF), as well as scientific publications of Ukrainian and foreign researchers who are interested in solving these problems

Summary

Introduction

The globalization of economic systems and the rapid development of information technology have led to the transformation of the accounting paradigm in most countries, the exit from the broad regulation system, and the formation of an accounting reporting system based on principles. The Conceptual Framework of International Financial Reporting Standards (IFRS) is traditionally based on the parallel application of regulatory and professional regulation tools. This approach provides variability of thinking and involves the use of professional judgment. The implementation of International Integrated Reporting Framework (IIRF), which does not provide Even though both IFRS and IIRF contain a direct requirement to apply professional judgment in certain cases, these regulations, as well as Ukrainian law do not define this concept. The Institute of Certified Public Accountants has prepared a Guidance on Professional Judgment for CPAs, where the term “professional judgment” is considered as “the application of relevant training, knowledge, and experience, within the context provided by auditing, accounting, and ethical standards, in making informed decisions” (The Chinese Institute of Certified Public Accountants, 2016)

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Conclusion