How much of accounting is "judgment calls"?

Question

In general, how critical is judgment in most types of accounting (tax, financial, etc.).

Is it fairly straighforward (granted, one knows the material well) or is there a lot of critical decision-making?

Answer 1

Frequently the answer is not clear cut, and you will need to do some research to find the answer you are looking for in applying accounting principles (on both the tax and financial accounting sides). Many times you will not be able to find any authoritative guidance that is "spot-on," and you will have to use your critical decision making skills to apply the concepts that are presented by GAAP and the Internal Revenue Code (and other authoritative sources). In my experience doing tax work, there were times that we did extensive research and weren't able to find any guidance for particular types of transactions. In those instances, we would have to ask the IRS for a private letter ruling.

To answer your question, you definitely need good judgement skills in accounting because the laws and the transactions of your clients are constantly evolving. What is applicable today is not always the same as yesterday or tomorrow.