The Role of Professional Judgment in Complex Auditing and Assurance Decisions

Abstract

The landscape of financial reporting and business operations is undergoing a
profound transformation, characterized by the rise of intangible assets, complex
financial instruments, decentralized organizational structures, and rapidly evolving digital ecosystems. In this environment, the auditing and assurance profession faces a critical paradox: the very standards and detailed guidelines designed
to ensure quality and consistency may be insufficient, or even counterproductive,
when applied to novel, ambiguous, and highly complex situations. The ultimate
safeguard in these frontier areas of practice is the professional judgment of the
auditor. Yet, the cognitive architecture of this judgment—how it is formed,
exercised, and optimized under conditions of extreme complexity—remains inadequately understood. Traditional research has often treated judgment as a
binary outcome, correct or biased, focusing predominantly on identifying and
mitigating cognitive pitfalls such as confirmation bias or anchoring. This paper
argues for a fundamental shift in perspective. We propose that professional judgment in complex contexts is better understood not as a discrete event prone to
error, but as a dynamic, adaptive capability—a complex system in itself. Our
research is driven by a primary question: What are the constituent elements
and interactive processes that characterize high-quality professional judgment
when auditors navigate decisions that lack clear referents in existing standards
or prior experience? To answer this, we draw upon unconventional methodologies from complex systems theory, cognitive neuroscience, and narrative psychology, constructing a new theoretical model and testing it through immersive
simulation. This approach offers a fresh lens, moving beyond the audit judgment literature’s traditional focus on heuristics and biases towards a holistic,
capacity-oriented framework. We contend that enhancing audit quality in the
21st century requires a deeper scientific understanding of how expert judgment
systems function at their best, not just how they fail.