Developing Judgment Capabilities: Training and Culture
Professional judgment is often described as something that comes with experience – and indeed, hands-on experience is invaluable. However, organizations and the profession at large do not leave the development of judgment to chance. There are deliberate training methods and cultural practices that can cultivate sound judgment skills in accountants and auditors. In this section, we explore how companies, firms, and educational institutions foster judgment capabilities, and how organizational culture plays a pivotal role in encouraging (or hindering) good judgment.
1. Experience and Mentoring: The traditional way accountants develop judgment is by apprenticing with more experienced colleagues. Early-career auditors, for example, start by observing how seniors and managers tackle complex areas, gradually taking on more responsibility. Mentorship is crucial – a seasoned professional can articulate why they made a certain call, share war stories of past mistakes, and instill values of skepticism and thoroughness. Many firms use on-the-job training combined with after-action reviews. For instance, after an audit season, a team might discuss “What judgments did we struggle with? What did we learn?” This reflective practice helps juniors see the thought process. Rotations through different industries or functions can also broaden perspective, an important aspect of judgment. An accountant who has seen multiple business models will be better at identifying unusual patterns or knowing what “normal” looks like. Professional bodies often require a certain number of years of supervised experience for licensure precisely because judgment is partly tacit knowledge gained over time.
2. Formal Training and Case Studies: Recognizing that judgment can be analyzed and taught, accounting firms and institutes have developed formal programs. These often use case studies – real or simulated scenarios that require judgment. Trainees might be given a complex scenario (e.g., “Company A is close to covenant violation, they propose changing an accounting estimate. What do you do?”) and work in groups to decide a course of action, then compare with what happened or best practices. Academic programs too have started incorporating judgment-oriented learning: rather than just teaching rules, professors use cases that force students to interpret principles, make estimates, and justify them. For example, a case might involve a nearly failed startup with intangible assets – students must decide if impairment is needed and what assumptions to use. By wrestling with ambiguity in the classroom, future professionals build muscle memory for the real world.
Many firms have judgment frameworks taught in training. KPMG, for instance, created a Professional Judgment Framework which outlines steps like defining the issue, considering alternatives, and being aware of traps (like confirmation bias). They present common “traps and biases” through interactive examples – e.g., a module where auditors must spot when they are anchoring too much on management’s estimate without fresh analysis. The Center for Audit Quality has published guides on exercising professional skepticism and judgment, which are used in training across firms. A core part of training is also ethics – reinforcing the ethical standards (like integrity, objectivity) that underpin sound judgment. Because at times, exercising good judgment means pushing back against pressure, ethical fortitude is needed. Training often includes role-playing such scenarios: e.g., simulating an audit client pressuring an auditor to accept a certain view, and coaching how to respond professionally and firmly.
3. Six Elements of Judgment (Likierman’s framework): Sir Andrew Likierman’s research, as referenced in the ICAEW article, divides professional judgment into six elements: taking in (perceiving information), trust, knowledge & experience, detachment (objectivity), choice (decision-making), and delivery (executing the decision). Training can target each of these elements. For instance, observation and “taking in” skills can be honed – auditors can be trained to notice non-verbal cues of evasiveness in client meetings (maybe an indicator of a potential issue) or to read between the lines of what is said versus what documents show. Trust is tricky: one must balance trusting evidence but also verifying – training on how to corroborate information helps here. Relevant knowledge and experience obviously grow with time, but continuing professional education (CPE) ensures accountants stay updated on new standards and industry trends, expanding the knowledge base they draw on. Detachment (or objectivity) is emphasized through fostering a healthy skepticism culture – trainers often remind staff to question their own conclusions: “Would I make this judgment the same if incentives were different? Am I free of bias?” Some firms encourage keeping a “professional skepticism reminder” – e.g., a notecard or an app prompt – to consciously reset any assumptions. Choice (the act of making the decision) is improved by practicing decision-making under uncertainty – some training uses time-pressured situations to practice making calls (since in real life, time is not unlimited). Delivery (executing or communicating the judgment) is about documentation and articulation – younger staff are trained to write clear memos and to speak up in meetings to articulate concerns.
4. Encouraging Consultation and Questioning: Organizational culture plays a crucial role. A culture that encourages consultation (asking for help, getting a second opinion) will help individuals make better judgments. If staff fear that asking questions will be seen as incompetence, they may make isolated decisions that are suboptimal. The best firms have a culture of “if in doubt, ask – and you will be supported.” Audit firms formalize this with required consultations for certain matters, but the day-to-day attitude matters too. Likewise, a culture of questioning and dissent (psychological safety) is critical. If a junior team member can politely say “I’m not comfortable with this revenue recognition, it feels off,” without reprisal, the team benefits from an additional viewpoint. Sir Andrew Likierman highlighted diversity of thinking as a booster for judgment quality. Diversity here means both demographic and cognitive diversity: team members with different backgrounds might spot different issues. Companies are recognizing that having, say, both accountants and data scientists work together on an estimate (like an ECL model) can produce a more holistic judgment – the data scientist brings modeling prowess, the accountant brings accounting principles and skepticism. Diversity also means avoiding groupthink – so some firms explicitly assign a “devil’s advocate” in big decisions to ensure at least one voice challenges the consensus. All these practices need a culture that values debate and doesn’t just defer to hierarchy on judgments. Junior auditors are taught to follow evidence, not titles – a senior could be wrong, and what matters is the merit of argument.
5. Use of Stories and Case Histories: Culture is often transmitted via stories. Organizations that share stories of both good and bad judgment help institutionalize lessons. For example, an audit firm might circulate an anonymized case where an engagement team’s skepticism prevented a major misstatement (“Team X insisted on additional verification and found a fraud – be like Team X!”), or conversely a cautionary tale where lack of follow-up led to an issue. Companies too, internally, might discuss near-misses – perhaps an internal audit found revenue was recognized a bit early in one division; rather than blame, they use it as a learning moment for all divisions to tighten practices. The ICAEW article notes using stories inside the organization about good and bad practice and conditions of stress as a way to cultivate judgment culture. When people hear concretely how someone’s judgment averted a disaster or how a lapse caused problems, it resonates more than abstract rules. It also humanizes the idea that mistakes can happen, encouraging openness (so people will speak up if unsure, rather than hide an issue).
6. The Appraisal and Reward System: What gets measured gets managed – so to encourage good judgment, companies can include it in performance evaluations. Traditionally, accounting roles focus on accuracy and timeliness, but now many firms explicitly evaluate professional skepticism and judgment as competencies. For instance, an auditor’s appraisal might have a section on “Displays sound judgment: consults appropriately, challenges management when necessary, makes well-reasoned conclusions.” If someone consistently demonstrates this, they get positive recognition, promotions, etc. If someone exhibits poor judgment (e.g., routinely needs review catches on their work for being too lenient or too harsh), that becomes a development point. KPMG’s judgment framework, for one, is integrated into their evaluation system to reinforce its importance. On the corporate side, an organization might include in its finance staff KPIs some qualitative goals like “improve internal controls and judgment documentation in your area” – making it clear that quality of judgment is valued, not just hitting the earnings forecast. A caution here: if the culture sets unrealistic financial targets, it can inadvertently encourage poor judgment to meet them. So aligning incentives is key – for example, management bonuses can be structured in a balanced scorecard way so that meeting targets through unsustainable means is not rewarded. Some companies even explicitly say that meeting numbers by compromising on accounting quality is unacceptable, and they empower auditors and audit committees to enforce that.
7. Continuous Learning and Keeping Up-to-Date: Good judgment also requires staying current with evolving standards and business environments. A company might invest in regular seminars for their finance team on new accounting standards or emerging issues (like crypto assets, sustainability reporting – new areas where judgment will be needed anew). Audit firms require annual trainings and updates. This constant learning ensures that one’s knowledge base (a foundation of judgment) stays relevant. Also, reflecting on past decisions – did they hold up? – is a learning feedback loop. Firms often have technical debriefs after new standards are implemented, to discuss challenges faced and how they were resolved – turning practical experience into future guidance.
8. Creating a Safe Environment for Judgment Calls: Mistakes will happen – not every estimate will be perfect. A supportive culture acknowledges this and focuses on fixing processes rather than punishing individuals for a reasonable judgment that turned out wrong. For example, if an impairment wasn’t taken early enough, management that responds by improving their process (maybe next time using a more conservative assumption or an external valuation) rather than scape-goating an employee, will foster a growth mindset in the finance team. People will be more willing to flag uncertainties and admit if something is complex beyond their knowledge if they know the organization prioritizes getting it right over saving face. As the ICAEW piece noted, “psychological safety means people feel comfortable voicing doubts and raising issues… You are much more likely to end up with a well-judged opinion when people do not hold back out of fear.”.
9. Technology and Judgment Aids: As mentioned earlier, while AI and analytics won’t replace judgment, training accountants to effectively use these tools is part of developing judgment capability. This includes teaching them about what AI can and cannot do, how to critically assess AI outputs, and how to integrate them into their decision process (e.g., using data analytics to identify anomalies for further human review). The next generation of accountants are being trained in data literacy alongside accounting. This equips them to leverage AI as a colleague of sorts – which can enhance judgment by providing more information to consider. However, training also emphasizes that with more data and tech, human skepticism and oversight remain crucial – for instance, if an AI flags nothing, a professional should still consider if that’s reasonable or if the AI might have blind spots.
10. Professional Standards and Ethics Education: Bodies like IFAC (International Federation of Accountants) via the IES (International Education Standards) require incorporation of judgment and ethical decision-making in professional education. Accountants often undergo ethics courses with scenario analysis – these help form the moral compass to resist pressures that could impair judgment. For example, an ethics case might simulate a situation where the CFO hints to a controller to “find a way to meet targets,” and the trainee must decide how to respond. Discussing these scenarios in training helps prepare professionals to face real pressure. It instills that their duty is to the public interest and fair reporting, not just to their bosses’ short-term desires. A strong ethical foundation gives confidence to make tough but correct calls.
In a nutshell, developing judgment is a multifaceted effort. It’s part education, part real-world practice, part psychological and cultural. Just as an expert surgeon hones skills through study, practice, and mentorship, an expert accountant or auditor hones judgment similarly. Organizations that invest in this – through training programs, supportive culture, and clear ethical standards – are effectively investing in the reliability of their financial reporting and the quality of their decision-making. Over time, this yields dividends in fewer errors, better reputation, and smoother audits.
One could argue that the increased complexity of standards (IFRS 9, 15, 16 etc.) has made judgment both more important and more challenging. This is why the profession has upped the focus on judgment skills in the last decade or two. The UK Brydon Report (2019) on audit quality, for example, recommended improvements in auditor education around judgment and skepticism, and the FRC’s 2022 guidance on professional judgment is a direct output of that. The fact that regulators are issuing guidance on judgment shows it’s recognized as a skill that can be nurtured, not just an innate trait some have.
A positive cultural sign is when team members at all levels feel responsible for the quality of judgments – juniors feel free to ask “why are we doing this?” and seniors feel duty-bound to explain and teach. When a firm reaches that level of openness, it’s likely to consistently produce well-reasoned judgments and also adapt well to new challenges, because everyone is aligned in the continuous improvement of their collective judgment capability.