Accounting and critical thinking: How reflection and deductive reasoning enable better accounting

Accounting and critical thinking by Kimi Witherell

Accounting is an industry that traditionally has had little innovation. Most accountants are used to reconciliation, financial reporting, and occasionally data visualization. Critical thinking skills like deductive reasoning and reflection are a differentiator for accountants, helping them stand out from the crowd through superior professionalism, impressive investigation, and streamlining skills.

In accounting, deductive reasoning and reflection are essential for identifying discrepancies, reflecting on processes, improving systems, and backtracking to uncover errors. These skills allow accountants to manage errors, draw conclusions, and improve frameworks more efficiently. Accountants with these skills are more professional, produce more organized ledgers and relevant data visualizations, and identify points of improvement for the organization (Sin, Jones, & Wang, n.d.).

Most accountants are capable of accurate reconciliation; however, truly exceptional accountants can not only create accurate financial reports but also understand the reports to help business owners make the best decisions (SAICA, 2021).

Reflection and reasoning are incredibly important for accountants. Reflection allows accountants to learn from their mistakes and understand the patterns of both industries and specific clients. Reasoning is required to decipher errors and help clients solve new problems (Schon, 1983).

Deductive reasoning is used by accountants to uncover inaccuracies and errors by reverse engineering the errors and correcting the data. Having significantly better deductive reasoning is a differentiator that clients will notice, enabling the professional to produce better results. Better deductive reasoning allows accountants to draw conclusions faster and more efficiently than other accountants of the same technical level (Zalaghi & Khazaei, 2016).

Internal reflection helps accountants better understand their internal biases and identify patterns in their professional workflow that could be improved or streamlined. Reflection is also an excellent tool when examining markets and businesses, helping accountants better recognize company and industry trends (Schon, 1983).

Deductive reasoning occurs when someone uses the information provided by a result to find the cause; accountants typically use deductive reasoning on out-of-balance ledgers. Deductive reasoning is sometimes also referred to as top-down reasoning, since the idea is to use the result and multiple premises that are assumed to be true to find the root cause of a problem. For accountants, deductive reasoning helps create a structured framework that allows accountants to best create theory, set standards, and apply rules with certainty (Zalaghi & Khazaei, 2016).

Accountants use deductive reasoning almost daily, since it's required for the majority of the profession's daily responsibilities. Two examples of when accountants apply deductive reasoning are during the application of standardized knowledge to practice and testing accounting hypotheses (Iselin, 1971).

Professionalism in accounting comes from the ability to use generalized principles of accounting and apply them to specific, concrete problems their clients have (Iselin, 1971). For example, a sales transaction might have contradicting revenue amounts. By applying deductive reasoning, an accountant can apply a standardized rule to a specific case, reaching a solution that is grounded in knowledge rather than trial and error. Returning to the revenue recognition example, an accountant utilizing deductive reasoning may first check if the account has been reconciled, since duplicate transactions that overstate revenue are known to be common. By utilizing the expert knowledge they possess, accountants are able to use the incorrect revenue and deductive reasoning to create a course of action and decide to check for duplicate transactions (Zalaghi & Khazaei, 2016).

Another example of deductive reasoning in accounting is when testing accounting hypotheses. In academic accounting research, researchers often compare deduced expectations against actual observations (Zalaghi & Khazaei, 2016). Then, using their observations, they determine if they support or reject the theory. When testing the validity of an accounting theory, the accountant specifies the premise, condition, and expected output that they hypothesize through deduction. Lastly, they use observations to prove or disprove their deduction (Iselin, 1971).

Accountants tend to use deductive reasoning with all clients. Because it is critical to finding errors and improving systems, accountants must constantly work critically to ensure there are minimal errors. Accounting errors are more likely to happen when there is more data, such as at an enterprise, but they occur regardless of data size. Therefore, even with smaller clients, accountants must keep their deductive reasoning skills sharp (SAICA, 2021).

Reflecting in accounting is a process where an accountant thinks about what they are currently doing while they are completing the action, often triggered by an experience or situation that is an anomaly. "Knowing-in-practice" is a frequent concept presented by accounting scholars; a core component is allowing professionals to move beyond the direct and routine application of accounting theories to address unique, uncertain, and conflicting data (Schon, 1983). Utilizing poorer quality data enables accountants to learn their theories without "overlearning," preventing them from being inflexible or prone to patterned errors in repetitive tasks (Sin, Jones, & Wang, n.d.).

There are many situations where an accountant will utilize their reflection skills. Many times these situations are hard to describe, or even document properly. The "gnawing feeling" and lifelong learning are two situations where an accountant would be utilizing their reflection skills (Schon, 1983).

Experts of any skill are sometimes able to identify errors simply by looking at a balance sheet, or glancing at a ledger. The "gnawing feeling" of professional skepticism is considered critical for accountants (SAICA, 2021). An accountant might have a "feeling" that something is wrong despite being presented with "good" data, because management had an explanation of the situation that didn't fit logically with the staff or business. Engaging in "reflection-in-action," a critical part of "knowing-in-practice," allows the accountant to conduct investigations even when the data suggests no problem exists (Schon, 1983). Many times, tampered or edited data will mathematically add up because they have been manipulated. As an accounting professional, one can use reflection to examine the situation and come to a logical conclusion about the data (Sin, Jones, & Wang, n.d.).

Professional growth and "knowing-in-practice" are achieved through reflection on experience (Schon, 1983). Reflecting on past projects, an accountant can explore the understandings and conclusions they drew from a case and prepare for future similar situations. This ongoing reflection allows accountants to develop a professional persona that characterizes an expert, and creates a reflective habitus that enables further "knowing-in-practice" instincts (Schon, 1983).

Reflection is most necessary when an accountant works on a task they're unfamiliar with. When completing new projects, or being met with difficult data, reflection is critical to ensure further development of their professional skills (Sin, Jones, & Wang, n.d.). Although reflection should always be happening, it is especially important when reviewing work to check for mistakes, patterns, or negligence, and then reflecting on improvements (SAICA, 2021).

Deductive reasoning and reflection are essential skills for accountants. These skills allow accountants to use their prior experiences and apply critical thinking skills, resulting in professionalism and growth (Zalaghi & Khazaei, 2016). Accountants with these skills better help their organizations by providing more in-depth, personal, and less rigid accounting. Reflection and deductive reasoning allow accountants to provide better conclusions and differentiate themselves from accountants who may be rigid and unable to adapt for their clients (Schon, 1983). Accountants unable to adapt to their clients' needs will not be able to draw useful or actionable conclusions and won't be able to support the business's goals as well as an accountant possessing these skills (Sin, Jones, & Wang, n.d.).

References

Zalaghi, H., & Khazaei, M. (2016). The role of deductive and inductive reasoning in accounting research and standard setting. Asian Journal of Finance & Accounting, 8(1), 23–37.

Iselin, E. R. (1971). The objectives of accounting in an accounting theory based on deductive methodology. University of Queensland Press.

Schon, D. A. (1983). The reflective practitioner: How professionals think in action. Basic Books.

Sin, S., Jones, A., & Wang, Z. (n.d.). Critical thinking in professional accounting practice: Conceptions of employers and practitioners.

SAICA. (2021). CA(SA) competency framework 2021 - Preface. South African Institute of Chartered Accountants.