Argument perspective

An argument follows from a perspective or viewpoint. This can affect the concepts used. Concepts are important in helping us assign meaning to our senses and information that we use. Immanuel Kant’s views on this have been ver}' influential in computer science and artificial intelligence. These views can be summarized in the saying that “Concepts without data are empty; and data without concepts are blind.” What this means is that you need concepts and data to make sense of the world. Both are needed in making effective arguments. In other words, concepts provide meaning to our observations and evidence. Without concepts we have no way of knowing how useful or relevant our evidence is, including evidence on which financial reporting is based.

This Kantian view is reflected in arguments by the fact that the most important reasons (major premises) are usually conceptual ones, based on some assumed model, theory, or principles. These major premises determine what data are relevant in an argument. For example, in auditing, the concept of management assertions regarding the financial statements drives much of the evidence-gathering logic. The assertions of existence, control, valuation, completeness, and presentation are the major points at issue in financial reporting. In turn, they are embedded in the theory and assumptions of accrual accounting, which determine the kind of data needed to verify the assertions. For example, much of financial reporting is based on historical cost. So, to verify assertions related to historical cost, auditors need evidence on what a client actually paid for various items. This means the relevant evidence the auditor needs to gather is driven by historical cost accounting theory. This illustrates that evidence is less important than the historical cost accounting theory because without the theory we would not know what evidence to gather. For this reason, audit evidence is treated as a minor premise in audit argumentation. The historical cost concept is what gives meaning and relevance to audit procedures that involve gathering evidence about records related to what was actually paid. Being aware of this relationship between concepts and evidence is a necessary understanding of effective argumentation.

Fortunately, in argumentation it is neither necessary nor possible to make all your assumptions, concepts, and principles explicit because your audience may accept the vast majority of your reasons. It is only a few contentious reasons that are normally the center of controversy. Most people will agree with or accept most of your reasons without question. This is because in a society we share much common knowledge (the “obvious” or “common sense”) and many social conventions that we often take for granted (such as a shared language and all its conventions for efficient communication). However, there may be subcultures within the wider culture (e.g., the norms within professional accounting firms) and it is important that the values and norms in the subculture be consistent with the broader social norms with respect to the goals of the audit and financial reporting. It is the responsibility of accounting firms, regulators, and the profession to ensure consistency of organizational norms with broader social norms.

A good critical-thinking auditor or accountant should be able to anticipate which claims or conclusions are going to be controversial (i.e., be able to understand the perspectives of others) and sharpen the argument to explain why a claim is appropriate in a particular case. This is one of the reasons why it is important to know your audience. For example, the auditor must decide on the acceptable level of epistemic probability for an estimate, relying on forecasts of future events. This decision would be greatly facilitated if principlebased standard setters could provide guidance on acceptable ranges for epistemic probabilities of various types of “fairly presented” accounting estimates or, equivalently, acceptable risks of failing to achieve the estimates (Smieliauskas 2012 refers to these as accounting risks). Note that without such guidance it can be difficult, if not impossible, to distinguish between reasonable, fairly presented forecasts and unreasonable or fraudulent forecasts in estimates. What is a fraudulent forecast? When is an assumption unreasonable? Current accounting standards say very little about making these distinctions in financial reporting. Yet they are crucial for determining fairness of presentation. These distinctions hinge on principles related to the acceptability of epistemic probabilities of forecasted estimates, and therefore principles-based standards should incorporate such principles, especially given the increasing use of such estimates.