Exercising Judgment Is Just Too Risky
Alex J. Pollock | Financial Times
March 25, 2010
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Sir, Steven Kingsley (Letters, March 18) rightly observes the "increasingly regimented approach" of auditors predominantly concerned with rule following, and rightly wishes for "much more judgment". But his approach of increasing their legal risk by making it more "actionable" is guaranteed to achieve the opposite of his desired outcome. It is precisely the threat of financially crippling lawsuits that pushes auditors and accounting firms into rule-following behaviour. Exercising judgment puts them at risk; following the rules provides them protection from rapacious lawyers, so more rules and rigorous rule-following are demanded. Escalating legal threats thus warps the inherently judgmental nature of accounting.

Alex J. Pollock is a resident fellow at AEI.

About the Author

 

Alex J.
Pollock
  • Alex Pollock joined AEI in 2004 after thirty-five years in banking. He was president and chief executive officer of the Federal Home Loan Bank of Chicago from 1991 to 2004. He is the author of numerous articles on financial systems and the organizer of the “Deflating Bubble” series of AEI conferences. In 2007, he developed a one-page mortgage form to help borrowers understand their mortgage obligations. At AEI, he focuses on financial policy issues, including housing finance, government-sponsored enterprises, retirement finance, corporate governance, accounting standards, and the banking system. He is a director of the CME Group, the Great Lakes Higher Education Corporation, the International Union for Housing Finance, and the chairman of the board of the Great Books Foundation.

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    Email: apollock@aei.org
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