Abstract

The traditional Efficient Market Theory believes that the market can identify all kinds of information, the security price will lead to the efficient allocation of social resources. This means that the efficient market is capable to give exact feedback on the relevance and reliability of the accounting information, therefore, the quality of accounting professional judgment is irrelevant to the rational decision of the participators in the market. The Modern Behavioral Economics puts forward three basic viewpoints aiming at the Efficient Market Theory under the new classical framework:the participators in the market are irrational; the irrational behaviors of investors are not random; their behaviors together don't make arbitrage work as expected. In the capital market, the accounting information providers（accountants）and receivers（investors）both have warps on the judgment of information. As to the specific economic business transaction, different accountants have different professional judgments, make different accounting recognition and measurement decisions and pass them to the market by financial reports. While some listed companies utilize the irrational pricing characters of the capital market to spread false financial information benefited to themselves, making the investors confuse illegal financial report behaviors and legal professional judgment behaviors. All these will reduce the validity of the capital market, the quality of accounting professional judgment is not irrelevant to the market efficiency. The study on accounting professional judgment will be helpful for us to explain and forecast more scientifically in theory the different financial information in the capital market.

On February 15,2006, China issued the new Accounting Standards System, which realized the tendency in coinciding with the International Accounting Practice. The new Accounting Standards take the complexity of the economic environment and the uncertainty of accounting events into fully consideration, leave much rooms of professional judgment for the accountants, so that the accountants can choose the most appropriate accounting processes or methods according to the concrete operating environment of the accounting entities. However, as for how to use professional judgment reasonably and how to evaluate the rationality, the Accounting Standards have not given a clear and consistent guidance. This leads to the abuse of professional judgment and makes the accounting information being of low quality. Moreover, the processes of the professional judgment are not enough full for us to exercise. They are not only influenced by the shortcomings of logic, but also influenced by time pressures, the defects of knowledge structures and other limitations of human cognitions. The accounting professional judgment process of different accountants is hard to be observed and compared; its consistency to the spirits of the Accounting Standards is more difficult to be analyzed precisely. The evaluation of professional judgment will be a difficult problem to be resolved. Therefore, to research this theme is of significant practical importance.

This article consists of 7 parts mainly as follows：

Part 1, the Elementary Theories of Accounting Professional Judgment

The judgment is a complex process. Judgment process includes the initial sensation and confirmation with questions, the search and collection of information, the evaluation and tradeoff of information and beforehand knowledge, the consideration of latent consequence value and effectiveness, as well as decision-making itself. Its existence depends on the need to make the meaningful decision or to make the choice at least. Otherwise, the action would be decided in advance and not need to judge. There is a more widespread process concealing from“the judgment”to“the professional judgment”. It requires the professional judger to have the related specialized knowledge, as well as objective and honest professional merits, and simultaneously to make the judgment according to the responsibility and request of occupation. Therefore，“the professional judgment”is a kind of judgment that is implemented by human who has the experience and the knowledge in the suitable professional criterion framework, and with the necessary attention, objective and honest.

Accounting professional judgment is a process that the accountants utilize their own specialized knowledge and the professional experience in line with objective and honest professional manner, judge and choose the uncertainty accounting events according to the regulations framework consisting of accounting standards and related laws, their enterprise's condition and the characteristics of business.

We pay attention to accounting professional judgment with three reasons as follows. First, we request the accounting information with accurate precision. Second, accounting standards are not complete. Third, the professional essence lays in the high standard of professional judgment.

Accounting professional judgment is not only a kind of human behavior, but also a kind of professional activity. As a kind of human behavior, it should be restricted by human finiteness inevitably; as a kind of professional activity, the professional environment should influence it inevitably.

Part 2, the Subjective Factors Affecting the Quality of Accounting Professional Judgment

Karl Marx believes that the subject fosters human initiative, and creates the social reality. The behavioral science suggests that the subject includes the persons, the social organizations and groups with behavioral purpose, awareness and ability. From the both opinions, we are able to figure out that the subject is not any more than realistic and social person. The subject of accounting professional judgment should be the person who makes the judgment. Because of the complicacy, the accounting professional judgment requires the relevant professional skills and knowledge, therefore, the subject of accounting professional judgment is not an ordinary person, but the accounting personnel who have certain accounting skills and knowledge, accounting professional judgment capability, meanwhile, who are directly involved in the enterprises and institutions of the accounting practice, and are capable to achieve the accounting goal through their own work or working with others. The subject of accounting professional judgment, in addition to the common characteristic of ordinary, need special characteristics, such as the initiative and professional skills.

The accounting professional judgment can be divided into two levels:the individual accounting personnel and the group accounting personnel.

The subject of accounting professional judgment firstly is human with the behavioral characteristics of ordinary beings. When they make professional judgment, the judgment quality is directly or indirectly influenced by such psychological factors as the psychological process factors including the cognitive warp, the fluctuation of mood, and will different due to the lack of cognitive ability, the personality trend of the need, motivation, value and attitude, the personality psychological characteristics of temperament and character.

The subject of accounting professional judgment at the same time is the accounting professional. As accounting professionals, in the professional judgment, they are influenced by such professional factors as professional knowledge and experience, accounting competence, professional morals. Professional knowledge and experience is the fundament of judgment of accounting personnel. Since their knowledge is limited, the accounting professional judgment is impossible to avoid bias. The professional competence transformed from the knowledge and experience is more important than other factors. The honest of accounting personnel is the cornerstone of the accounting professional judgment.

Part 3, the Object Factors Affecting the Quality of Accounting Professional Judgment

The object of accounting professional judgment is something concerned in the cognition and practice scope of the evaluator（accounting personnel）in the process. The accounting professional judgment takes place in dealing with accounting business, therefore, accounting events are objects of the accounting professional judgment. They should have four characteristics:objective reality, objectiveness, uncertainty and dynamic.

The object of accounting professional judgment is closely related with other judgment elements. Firstly, the judging subject and object have relationship of understanding and practice. Secondly, the relationship exists between judging object and methods. Finally, the judgment object is subjective to the environment, whose complexity determines the complexity of the judging object.

The complexity of accounting events is the base of objective elements analysis of accounting professional judgment. The accounting events of enterprises are various and complex. The different complexity of accounting events demands different accounting professional judgment. The more complex it is, the stronger influence in the judgment. The complexity of the accounting events mainly reflects in two aspects:the uncertainty and unstructured of accounting events.

The objective factors of accounting professional judgment affecting the quality reflect in various steps in the accounting conduct. In the process of recognition, the following basic problems are needed to be resolved:Which items should enter the accounting system? Which accounting events have access to the system, which elements should they be included in? When should these items be recorded and included in statements? For the certain and structural accounting events, the solution to these basic problems is simple; for the uncertainty and semistructured and unstructured accounting events, the accounting professional judgment is needed to resolve these problems. Moreover, the higher degree of uncertainess and the lower level of structure, the higher demand of accounting professional judgment. The degree of uncertainty and structure of accounting events is important factors affecting the judgment in process of confirmation. In the measurement of the accounting, whether the assets pricing or the determination of incomes, both of choices as following are needed:one is the unit of measurement and the other is the measurement attribute. The combination of these two options formats different accounting measurement model. The process of making choice is actually the process of accounting personnel making judgment towards the objects. For the choice of measurement attribute, if it is low level of uncertainty and unstructured problems, the judgment is relatively easy; if it is a higher degree of uncertainty and unstructured problems, it is relatively difficult to judge. Therefore, in the measurement process, the level of uncertainty and structure are still important factors in affecting the judging quality. The main methods for accountants to make records are the account setting, double-entry bookkeeping, journalizing and posting. Therefore, the records in accounting professional judgment mainly reflect in some accounting events that are relatively simple, low degree unstructured. As a result, the object can't, generally speaking, exert a significant impact on the quality of judgment, which is relatively high and stable in this session. In the financial reporting process, the judgment is made mainly in light of the accounting events to determine whether the enterprise is able to continue to operate or not and the importance of events. Whether the judgment of sustainable operations or the judgment of importance, the judging objects has a certain degree of complexity. It is its complexity that makes the accounting personnel difficult to grasp accurately, thus affecting the quality of professional judgment.

Part 4, the Environmental Factors Affecting the Quality of Accounting Professional Judgment

Human behavior is a combination product of person and the environment around them. The direction and intensity of people's behavior are affected by two main factors:the internal individual factor and external environmental factor. Its direction and intensity is mainly influenced and restricted by two big factors:internal individual factor and external environmental factor. Individual factor, means the psychological factor, external environmental factor involves the social, economic, cultural, legal and technological environment in this paper.

As the subject of the accounting professional judgment, the accountants are similarly affected by such macrofactors, on the other hand, the micro-environmental factors such as the enterprise's organization, the enterprise's structure, and the product characteristics will also affect them. However, the intensity is different.

In the macro-factors, this article mainly studies the accountant standard, especially the accountant criterion's influence on the accounting professional judgment. For one side, accountant standard has built working conditions for the professional judgment. On the one hand, accountant standard has provided the legal basis for the judging behavior, has limited the judgment degree of the accountant, and has made the accountants carry on more objective judgment by punishment and other measures. On the other hand, the accountant standard（mainly accountant criterion, system）is the most directly and the most fundamental judgment standard, which is the technical guide in practice.

In order to analyze the influence of accountant standard on judging quality at the deep level, this article has launched the research from two aspects. One aspect is to prove that accountant criterion enhances the average judging quality by analyzing the background and formulation procedure of the accountant criterion as well as decision-makers'competence. The other aspect is the scotoma in the practice by accountant as the imperfection of accounting standard is existing will influence the judging quality of accounting profession.

As for micro-factors, this article mainly applies Contract Theory to study how the governor's intention affects judging quality and how the company governing structure keeps in balance with the governor's behavior to prevent judgment from the governor's bad intention. According to the Contract Theory, the enterprise is an assembly of series contracts. Accountants play the vital role in formulating contract provisions and supervising implementation of these provisions.

The accounting data are always used in all kinds of contracts（debt contract, administrative personnel's reward plan）, regulation of incorporation, detailed rules and so on.

Watts and Zimmerman（1978,1979,1986）conducted the positive study, and summarized influencing factors on accountant's choice as the reward plan, the debt contract and the political cost. And they believed the business management authority would have the motive to beautify the financial report form to satisfy the debt contract and the reward contract through the choices of accountants.

This article believes the management authority also has the motive to disturb the accounting professional judgment. There are two ways for the management authority to influence the accountants:one is the order or suggestion to disturb directly the accountants; another one is the guiding direction of leadership to influence the accountants.

In a company with perfect governing structure, it is possible to check and balance the management authority because the power and responsibility of governors are clear. The order or suggestion and the guiding direction of leadership to disturb the accountants can be kept within limits. The quality of accounting professional judgment can be improved.

Part 5, the Positive Analysis of the Factors Affecting the Quality of Accounting Professional Judgment in China

This study surveyed some accountants engaged in enterprises via the questionnaire to find out the factors that impact on the quality of accounting professional judgment and the relative importance of these factors.

The questionnaires were issued mainly to some enterprises and some administrative units（the Financial Bureau, the Revenue Department）in the following five big cities:Shanghai, Guangzhou, Shenzhen, Wuhan and Qingdao, as well as in three mediumsized cities:Hami City of Xinjiang Autonomous Region, Wuxue City of Hubei Province and Shiyan City of Hubei Province. A total of 300 questionnaires were sent, and 247 questionnaires were reclaimed, the reclaiming rate is 82.33%. 203 of 247questionnaires are valid and the reclaiming rate is 67.67%. The questionnaires were issued on December 15,2006, and the deadline for the reclamation of the questionnaires was March 15,2007.

There were 20 factors, which have the impact on the quality of professional judgment in the questionnaire. We asked respondents to make the 5-grade evaluation for each factor. A represents“best important”， B stands for“more important”， C stands for“important”， D stands for“unimportant”and E stands for“null and void”. 20 factors were based on the theoretical analysis of Part 2,3,4,5 in this article.

Recruiting and sorting the questionnaires, this article tried to answer two questions:（1）What are the main affecting factors of accounting professional judgment in China?（2）Whether or not the different accountants in age, education, job titles, and personality characteristics and so on have the significant differences on the understanding of the affecting factors of accounting professional judgment？

For question（1）, we reached the following conclusions:（1）The professional attainment of accountants is the core element of the impact on quality of accounting professional judgment, which includes experience, knowledge, competence, ethical standards and so on.（2）The impact of the accounting environment on the quality of professional judgment should not be ignored, which includes the accounting standards, internal corporate governance, accounting and other professional training.（3）Accounting personnel has not yet been fully aware of individual characteristics such as the cognitive ability and personality, as well as the complexity of judgment objects, which have the impact on the quality of professional judgment.

For question（2）, we reached the following conclusions:（1）Young accountants believe that the intention of management authority as well as the demands and motivations of accountants have more important impact on the quality of accounting professional judgment.（2）Young and low-titled accountants put more emphasis on the impact of the object on the quality of judgment.（3）Accountants with low-level qualifications attach greater importance to environmental factors.（4）Accountants with more introverted personality believe that the caution has more important impact on the quality of the accounting professional judgment.

Part 6, Quality Evaluation of Accounting Professional Judgment

The best important quality standard of the evaluation is the accounting professional judgment results accord with the objective fact. However, due to the uncertainty of accounting events and the ambiguity of basis for the judgment, it is difficult to answer this question. This article believes that we can use the judgment consensus, the stability of judgment conclusion, the adequacy of judgment basis and the fair of judgment stand as standards. The accounting professional judgment with the“four”can meet the reliable, relevant and comparable requirements of accounting information as well as possible.

The first step of quality evaluation is to establish evaluating index system. The index system should follow the feasibility, scientific, effective and dynamic principles. This article provides the evaluating index system under the affecting factors perspective, which requires the quality evaluation focusing on the judgment process not on the judgment consequence. The framework of index system is divided into three levels:target, element and index levels. The quality of the accounting professional judgment is the target. Element levels consist of the subject, object, and environmental factors. This article suggests 12 factors as the index levels which impact on quality of accounting professional judgment, for example, the accounting work experience, professional background, level of education, professional ethical standards etc.

The second step of quality evaluation is to establish evaluating model. Accounting professional judgment is a system, which is composed of the subject, object, judging means and methods. There are always some uncertainty and fuzzy in the information for us to evaluate the quality of accounting professional judgment. It is very difficult to identify a data to evaluate the status of various factors. In order to get more scientific consequence in evaluating the judgment quality, this article introduces the fuzzy comprehensive evaluation model into evaluating and establishes the Quality Evaluation Model for the accounting professional judgment.

This article took a financial manager, LMZ, × × Limited of Hubei Province as an evaluation object to verify the effectiveness of the model. The data shows in this article that using the model to evaluate the quality of the accounting professional judgment can get the conclusions closed to the objective facts.

Part 7, Optimizing the Quality of Accounting Professional Judgment

According to the observation in this article covering the theoretical and positive analysis of the quality of accounting professional judgment, we meet a great mission in utilizing the accounting professional judgment to optimize the quality of accounting professional judgment and accounting information. This article believes we have to optimize the quality from both of the internal and external in the accounting professional judgment.

The internal optimization includes the psychological quality and the professional competence of accountants.

This article provides the two measures to optimize the psychological quality:（1）the objectivity of cognition and the stability of mood,（2）establishing the incentive mechanism. As the second one can satisfy the beneficial demand of the subject and encourage the subject to optimize the judgment, it is the key measure including five aspects as following:（1）paying the negotiated salary and the welfare,（2）providing individual developing room which is anticipative,（3）guaranteeing working-flow flexibility,（4）designing reasonable deferral compensation plan,（5）considering the satisfaction of individual interest as fully as possible.

This article also provides the three measures to optimize the professional competence:（1）renewing the knowledge structure unceasingly, including the knowledge of accounting theory, related criterion, law and moral rule.（2）Enriching the subject experience system.（3）Improving the occupational ethic level.

The external optimization includes the micro-environment and macro-environment of accounting professional judgment. This article focuses on the psychological contract mechanism, which is kept an appointment by the subject in the micro-environment. This article also focuses on some constructive suggestions in the accounting standards. The accounting standards should be clear about the definition and guide of professional judgment, regulate the support to the judgment, and persist the stableness of judgment regulation.

 

Key Words:Accounting Professional Judgment Subject of Accounting Professional Judgment Object of Accounting Professional Judgment Environment of Accounting Professional Judgment Accounting Standards Corporate Governance Structure Quality Evaluation of Accounting Professional Judgment Comprehensive Fuzzy Evaluation