Chartered accountants are being advised to live by ethical codes, not just pay lip service to them
BUSINESS ethics, or the lack of them, are once again coming to the fore in business circles. This is hardly surprising. The extraordinary tide of liquidity that propped up global economies and markets for most of the last decade has now gone out. In its absence, it has left an unsightly mess of corporate scandal and skullduggery, previously obscured from view. And there’s probably more to come.
In recent months, there has been the rogue-trading scandal at Societe Generale, the suspension of Blacks Leisure’s board director Darren Spurling after profits were overstated by £2 million, fresh developments in BAE Systems’ Al Yamamah defense contract debacle, and most recently the massive pay packets awarded to Scotland’s leading bankers, even though few had done much to deserve such largesse.
Against this backdrop, the Institute of Chartered Accountants in Scotland — founded by Royal Charter in 1854 and the oldest accountancy institute in the world — is determined to nail its colours to the mast of ethics.
There is a degree of self-interest here. Professionals such as chartered accountants are painfully aware that, unless they show a commitment to ethical standards, some of their privileges, including the monopoly they enjoy over auditing, might be removed. Just ask Scotland’s lawyers, who recently voted in favour of a massive deregulation of their own profession for fear of having this forcibly imposed by the government.
At a recent event held at ICAS’s Haymarket Yards headquarters, ICAS officials stressed that it is no longer sufficient for individual member accountants, commonly known as chartered accountants or CAs, to pay lip service to ethical codes. Instead they must live by them.
The Edinburgh event was mainly to launch a new book about ethics, written by Dr David Molyneaux, a lecturer at Aberdeen University, a former Coopers & Lybrand partner and an ordained Church of Scotland minister. In the book he writes: “Without ethical courage, statements of ethical principals may be very interesting academic ideas that serve little purpose beyond posturing.”
The book, “What do you do now: Ethical issues encountered by Chartered Accountants”, consists of 28 real-life ethical dilemmas which chartered accountants may face during their working lives. The hope is that readers, possibly in round-tables and workshops, will use these scenarios to weigh up and debate how they personally would behave and respond in each case. Rather than being didactic, each of the scenarios ends with the open-ended question: “What do you do now?”
Some believe the use of this case-study approach towards the teaching of ethics is flawed. Harvard Business School academic Mary Gentile believes its widespread use has brought on a condition she describes as “ethics fatigue” throughout American business schools and training institutes. More worryingly, she believes the approach fails to address the question of how principles are put into practice. “What I often hear from students and managers is that they know what is right, they just don’t know how to do it,” says Gentile.
ICAS believes the book will stimulate debate and greater understanding about ethics among chartered accountants. It also wants to remind chartered accountants — some of whom risk having their ethical antennae dulled or even removed after years of poring over balance sheets and profit & loss accounts for their clients — have duties to their profession and to the wider public which go above and beyond their own narrow self-interest, the financial performance of their firms or else how their clients are perceived.
Molyneaux summarises the difficult moral positions in which chartered accountants can find themselves by saying that unlike other “guardians” — such as judges, policemen and academics — chartered accountants are not paid by society out of taxation but must negotiate their own fees with those whose accounts they judge. “Auditors’ position at the cusp of being ‘guardians’ and involved in commerce definitely brings real tensions, tensions which individuals and firms often have to reconcile privately and on their own,” he says.
He warns however that “ethical bravery” is particularly difficult for those working in industry, for example as finance directors, to summon up. Such people are less likely to have a cadre of sympathetic colleagues around them with which to share their ethical dilemmas.
The overall message from the event appeared to be hat ICAS believes it is incumbent on ICAS members to blow the whistle should they find colleagues or clients indulging in illegal activity or even “creative” accountancy. This prompted a lively debate with some ICAS members arguing that institute chief executive Anton Colella was being “optimistic”, given the nature of the commercial world in which chartered accountants must operate.
Other financial institutes are getting in on the ethics act. The much larger Association of Chartered Certified Accountants (ACCA), which has 300,000 students in training, as opposed to ICAS’s 3,000, recently claimed that the introduction of an ethics module into its training has helped boost professional standards across the industry.
And the US-based CFA Institute, which is mainly for asset managers and investment analysts, has launched an advertising campaign claiming that “When someone has achieved the CFA designation, make no mistake, he or she is well aware ethical responsibilities. … They have acknowledged their obligation to act in an ethical manner and to encourage others to do the same.”
However if ICAS’s plan to raise its ethical game is to have long-term credibility, the institute may also need to sharpen up its approach to discipline. The joint disciplinary scheme to which it subscribes has been described as “a useless organisation”.
JDS took 10 years to investigate the Maxwell scandal and then blamed a Coopers & Lybrand partner who was already dead. And a JDS case against Deloitte, formerly Rutherford Manson Dowds, and three of its current and former partners over the audit of Semple Cochrane — a Paisley-based support services company that inflated profits during 1990s — is still dragging on a decade after the event.
This may suggest that there’s one piece of the jigsaw missing when it comes to chartered accountants and ethics. If accountancy bodies are to retain their self-regulatory powers but continue to give an impression of being lenient towards their own members when they err, then there’s a risk that insisting members uphold high ethical standards will end up being seen as so much hot air.
This article first published in The Herald Business Magazine on 26 June 2008