What is the relevance of auditor judgement and your perceptions of whether the Easter bunny was human-size or rabbit-size?
The answer lies in how your experiences impacted your knowledge and imaginings.
I thought the Easter bunny was rabbit-sized. From my non-statistical sample of my friends at the rock climbing gym, all think the Easter bunny was human-sized. All referenced having seen a person (adult) dressed in a bunny outfit and therefore believed the Easter bunny was human-sized. Not me. I grew up in a ridiculously small town. No one there dressed up as the Easter bunny. If Pud or Onions or his mate Boof even tried dressing in a shirt with a collar (that was not flannel), he couldn’t show his face in the middle-pub* again.
I digress. My point is that our expectations are based on individualised norms* or experiences. But how does this affect auditor judgement and our audit opinion??
A professional opinion is backed by experience, structured thinking and evidence based assessments. Is there a difference between professional judgement and judgement?
You’ve probably heard of references like ‘if it’s too good to be true, it is’ or ‘does it pass the smell test’. An auditors equivalent to these is a highly tuned tool – professional judgement.
You aren’t born with professional judgement. It is learnt over time and with exposure to a diverse range of experiences. This is why we don’t make first-year graduate auditors sign the audit report. Will they know when the finance manager starts sweating, when asking about a reconciliation that doesn’t reconcile, to keep asking questions? Open ended questions? Will they know whether $450m to $530m is a ‘reasonable’ range for a valuation of X asset in Y jurisdiction in a declining Z market? ….and anyway, they are too busy attending classroom learning, being coached, and gathering experiences to fill their audit-passport across essential financial areas!
This time of year, as 30 June year-end financial records are being closed, we auditors are preparing our tool kits, ready to test the truth and fairness of the financial statements. We are sharpening our focus, replacing worn-out methodologies, upgrading our software, and acquiring new experiences to develop our professional judgement, so it is fit-for-purpose in today’s market.
You may have heard auditors are innovating. This is more than using technology to crunch some data. Auditors are using new tools to do and learn more about behaviours of numbers and business activities: over time, across industries, within product lines, identifying influencers of patterns, when and for how long, and how much. All of these experiences shape and reshape the auditors’ professional judgement as more data and correlations are uncovered. This is critical to enable an auditor to identify the true outlier that may be the material misstatement in the financials. Without this innovation and as the markets get more sophisticated, and complicated, we might continue to think the Easter bunny is rabbit-sized. Clearly he is human-sized!
This was followed by in-depth testing of correlations for Santa, the tooth fairy, and then Sam asked what size Jesus was (clearly influenced by seeing many school nativity scenes with small kids acting). My response was “slices or blocks of?” [insert embarrassment] I thought he said cheeses. Yep. Forgive me, its not my fault, because this whole discussion was following one on an emu-human hybrid possibility, to be known as a JeffU. But alas a story for another day….
*middle pub, in a town with 2 pubs. Please try and work that out! I suspect this indoctrination, in my formative years, into basic reasoning may have influenced how I see and (mis)use terms of mid-point!