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 'To Judge', it means forming an opinion or taking a view about something or some one after a careful thought, study and examination. Everybody has to take a judgment on every issue one confronts at various points of time. A person makes a judgment as to the line or course of education he/she has to pursue; has to make a judgment as to whom he/she is to marry; so on and so forth. Therefore, making a judgment is part and parcel of ones life--quality life to proceed further.

Taking a judgment on each issue one comes across is sine quo non without which human life guided by the Sixth sense would be loitering with out any direction. The point at issue is how for the judgment is just, meaningful and real to a situation.

But, in this article, an attempt is made to grasp, comprehend, compare and draw a line of distinction between the judgment normally 'given' in a Court of Law and a judgment, more often than not, 'taken' by auditors in making their observations in their reports.

To judge any issue, a thorough and detailed study so as to examine its background, its impacts with all its manifestation and results, prima-facie and hidden that trigger the issues are ab- initio necessary.

In a Court of Law, judges normally examine the 'cases' with all the possible legal ramifications on the basis of facts and evidences presented and contested by the parties to the dispute. It is called a 'case' for simple reason that is virtually to be broken open so as to understand the real issue unbiased without open mind. The lawyers on both sides assist the Court after proper hearing and examination of the documents and evidences produced, sighted and cross examined. The judgment 'given' in the order is binding on the parties to the dispute involved.

The judge involved has all the time at his disposal- many a times involving different judges for sheer time taken by the process of judicial examination by regular postponement of hearings for one reason or the other before delivering judgment, primarily caused by the absence of a legally binding time frame for the delivery of judgment. As a result, cases are piling up not seeing the light of the cases bundled in the case- files- giving birth aptly to a slogan 'Delayed justice is no justice'. Perhaps, they are called 'cases' since bundled in 'cases' gaining 'dust to rest' until see the light of the day!

But, alas! What is the position of auditors? They examine the 'figures' in the books of accounts on which living figures heavily depend on. Auditors, to give a 'true and fair-view' of accounts has to study, examine and take a call on judgments on various and diverse issues that have a bearing on accounts like,

Where estimates/judgmental calls are involved like

• Provision for depreciation/amortization
• Provision for doubtful debts/advances
• Provision for impairment
• Provision for taxation etc.

Where judgmental calls/estimates to be taken on

• Pending disputed cases in revenue departments
• Pending Court Cases at different levels

On the top of this, there is a rigid time frame for audit opinion/ report since prescribed in the respective Acts/ by Regulatory Authorities.

Very often, auditors have to examine and study the possible outcome of various cases- pending, for and against the client at different levels of appeals or languishing in the desks of government agencies gathering dusts or rotting with greedy and stubborn contractors. Since their reports are time bound, they may have to per force take an auditing decision/ judgment before judicial verdict is out or before any settlement is reached in other disputed cases under negotiations. At times, in critical cases/issues, where it would be very difficult to decipher and hence to take a call on judgment, they are in a predicament situation of standing between two stools; nonetheless, they have to take an auditing stand on accounting issues emanating from unsettled cases, of course with a proper disclosure. Here, they rely on the details of the cases, past experience within the entity or cases settled on similar though not identical ones, along with expert and legal opinions. It goes with out saying, at this point; they are in an unenviable or vulnerable position of taking a judgment call for estimating the likely impact on the accounts even when it is a thousand dollar question as to how the judgments would turn out, in the ultimate outcome at a latter date.

Besides, auditors have to take a call on 'estimates' on various undecided and unclear issues, apart from the normal ones as mentioned against a variety of provisions mentioned above. Very often, they have to address the issues that are unpredictable and at times volatile where judgment plays a major part.

To 'estimate' one should be conversant and familiar about the issue about which he has to estimate. In fact, the word 'estimate' is built on the word 'mate'. Class mates know each other in his/her class and hence, he/she knows to whom to be referred for any doubt or clarification on various subjects like math, science etc. depending on the ones proficiency on a particular subject. Similarly, Mr.M.S/Dhoni knows, as the captain of the cricket team, who should open the battings, who should be placed at different points in the field and how to rotate the bowlers under him. What it coveys speak for itself-- a person should be acquainted with the subject about which one is to estimate.

But, at times, it so happens that on certain accounting issues, auditors' exposure is not sound or clear enough to take a judgment call. There comes his experience to go for consultation within /outside the organization- independent expert and legal views so as to facilitate a judgment call as to the accounting treatment to be given to the figures in the books, as the doctors go for scans or other advanced tests to diagnose diseases afflicted to living figures.

As compared to the judicial judgment, auditors' judgmental call is onerous and arduous due to the following reasons:

a. Court judgments are orders binding on the parties to the dispute; Audit reports are observations.

b. Court judgments are appealable; but, audit reports? Not appealable but may be exposed to disciplinary action in case of dereliction of duty.

c. Courts have their own jurisdiction- High Courts have their own jurisdiction. Supreme Court utmost to the boundaries of Union of India. But, what about audit reports? With globalization and multinationals' stocks quoted across stock exchanges through out the world, the reach of the audit reports is global/ phenomenal since stakeholders heavily rely on their reports; possible, if at a future date the stakeholders are fortunate enough to settle in outer Planets, the reach of audit reports may go beyond global!

e. With all these and above, auditors have to deliver their reports within the time frame as explained earlier while the courts have more than ample time to deliver judgments.

Auditors, therefore, are to be better understood for their reports as to 'true and fair value' since they have to pen their reports even when the out- come of certain issues on which they have to lace their observations are at- times any body's guess and wide open on the date of reports; and hence based on best of judgments.

While Courts could give their verdicts/judgments with an authority of an order since all possible and plausible evidences have been gone through, auditors could give only their observations based on their judgmental calls on pending issues, for reasons copiously dealt with earlier in the article.

It is why Courts have to be 'accountable' for their judgments, while audits have to take a call on 'judgment' generally known as 'judgmental call', in certain areas of audit while accounting!

The above article is based on a chapter in my book on "Discussion Galore"


Published by

P.R. Sethuraman
(Chartered Accountantant)
Category Audit   Report

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