Practical and theoretical judgment in data-driven financial due diligence

Purpose

New digital technologies are reshaping the business landscape and accounting work. This paper aims to investigate how incorporating more data and new data analytics (DA) tools impacts the role and use of judgment in financial due diligence (FDD).

Design/methodology/approach

The paper reports findings from a field study at a Big Four accounting firm in Sweden (“DealCo”). The primary data includes semi-structured interviews, observations and other meetings. Theoretically, it draws on Dewey’s The Logic of Judgments of Practise and Logic: The Theory of Inquiry and distinguishes between theoretical (what is probably true) and practical judgment (what to do).

Findings

In DealCo’s FDD practice, using more data and new DA tools meant that the realm of possibility had expanded significantly. To manage the newfound abundance and to use DA effectively, DealCo’s advisors invoked practical and theoretical judgments in different stages and areas of the data-driven FDD. The paper identifies four critical uses of judgment: Setting priorities and exercising restraint (practical judgment) and forming hypotheses and doing sense checks (theoretical judgment). In these capacities, practical judgment and theoretical judgment were essential in transforming raw data into actionable insights and, in effect, an indeterminate situation into a determinate one.

Originality/value

The study foregrounds the practical dimension of knowledge production for decision-making and contributes to a better understanding of the role, use and importance of accounting professionals’ judgment in a data-driven world.