Judgment and U.S. Accounting Standards

An analysis of US financial accounting standards indicates a close relationship between the standards and the judgment of preparers and auditors who apply the standards. Those who set US accounting standards should move to make the standards' relationship with judgment explicit and should recognize the importance of that relationship to the effective application of the standards. Several actions would be useful, including: 1. Provide a statement affirming the importance of judgment in interpreting and implementing pronouncements. 2. Provide a definition of professional judgment. 3. Review new and possibly existing standards to reduce the apparently large number of ambiguities and other difficulties that detract from the thrust of the standard by requiring interpretive and clarifying judgments rather than judgments on substantive matters. 4. State the main objectives of each accounting standard to facilitate the task of statement preparers and auditors who are trying to apply the standard according to its spirit.