Ethics Seminar at CICPA
• Anton Colella, Chief Executive, The
Institute of Chartered Accountants of
Scotland (ICAS)
• Douglas Nisbet, President, The Institute
of Chartered Accountants of Scotland
(ICAS)
• 2 February 2010
1
Ethics Seminar at CICPA - Overview
•
Introduction – Ethics for Professional
Accountants
•
Case Studies
•
Final Discussion and Closing
Comments
2
About ICAS
• We have the first Royal Charter given
to a UK accountancy body in 1854
• High profile members in the fields of
accountancy and business
• Approximately 18,000 members
• Excellent reputation worldwide
3
What is ethics?
•
Ethics is concerned with how an
attitude, action or decision is
determined as ‘right or wrong or
good or evil’ (Donaldson, 1988).
4
We all want to do the right thing,
don’t we?
•
Ethics is a global issue
•
All accountants are facing similar
decisions
•
IFAC code applies globally and is at the
heart of ethics
•
Local factors come into play in
application of ethics
5
Why Ethics is important
•
ICAS Public Interest Charter
•
Ethics and integrity
•
Ethics underlies judgement in a
principles based accounting regime
6
Potential Ethical dilemmas for
Accountants
•
Monthly financial targets not likely to
be met and/or possible breach of
bank covenants.
•
Possible manipulation of figures in
financial accounts.
•
In the UK bonuses/share options for
employees may depend on certain
level of profits being reached
7
Potential Ethical dilemmas for
Accountants
•
Pressure from client/bank if an audit
report needs to be signed today and
there is insufficient information to
know whether accounts show a true
and fair view
•
Whether to make people aware of
conflicts of interest in business
dealings.
8
Impact of dilemmas
•
Some issues may be trivial – but
there may still be a right and wrong
course of action.
•
Others may lead to severe
consequences – as various
accounting scandals worldwide can
testify.
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Satyam Computer Services
•
Started as an attempt to disguise a poor
quarterly performance and then got out of
hand.
•
Manipulation of accounts for several
years.
•
Impact of scandal on India’s reputation.
10
Satyam Computer Services
“It was like riding a tiger, not knowing
when to get off without being eaten.” Mr B
Ramalinga Raju, Chairman and Chief
Executive
11
Case study
•
You are a financial controller in a medium sized
company.
•
The financial director asks you to follow an
accounting policy for certain types of
transactions which is not in accordance with
the accounting requirements.
•
In year 1 these transactions are immaterial.
•
What do you do?
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Case study continued
•
Assume that you did as you were
told.
•
In year 2 these transactions are now
material – what do you now do - have
you willingly approved the accounting
treatment – can you reverse the
decision?
13
Case study continued
•
‘Creeping up’ effect – small breaches
can lead to greater breaches.
•
Auditor has to be careful – item could
be immaterial to begin with.
•
Pay attention to the possible longerterm consequences of current
business decisions.
14
Once you’ve started it’s like a
runaway train…
15
Identifying an ethical dilemma
•
This is the first challenge.
•
If you can’t identify the issue then
how can you do anything about it?
•
Need for ethics training - students
and qualified accountants.
16
Ethical training at ICAS
•
ICAS students do a 2 day course as part
of their training.
•
Students must pass an ethics assignment
•
New online training course
•
What are the requirements for existing
ICAS members?
•
What are the requirements for CICPA
members?
17
Once an ethical dilemma is
identified what should you do?
•
Consider the dilemma/circumstances.
•
Is it a simple black or white matter?
•
Refer to the ICAS/CICPA/IFAC Code of
Ethics
•
Refer to your employer’s Code of Conduct.
18
Once an ethical dilemma is
identified what should you do?
•
Discuss with trusted colleagues or
friends in the profession
(confidentiality issues?)
•
Does your employer have an ethics
helpline?
•
Discuss with the CICPA?
19
Once an ethical dilemma is
identified what should you do?
•
Ultimately, you must decide your
course of action.
•
Professional responsibility.
•
How would it look if my actions were
reported on the front page of the
newspaper?
20
IFAC Code of Ethics
•
The Code is principles-based but is
under pressure from some countries
to become more rules based.
•
“Shall” instead of “Should”.
•
Four parts to the Code
21
IFAC Code of Ethics – key
principles
•
Integrity
•
Objectivity
•
Professional Competence and Due Care
•
Professional Behaviour
•
Confidentiality
22
IFAC Code of Ethics – key
principles
•
Follow the fundamental principles
•
Full guidance where applicable
23
IFAC Code of Ethics
•
Having a Code of Ethics is merely a
starting point - it is the application of it that
matters.
•
Enron had a fantastic ethical code.
•
However, they never embedded the proper
message.
•
Tone at the top is crucial.
24
IFAC Code of Ethics
•
At present there is no mandatory
requirement for qualified members to
undertake training in ethics.
•
This is kept under review.
•
ICAS has moved to an output based
system of Continuing Professional
Development (CPD).
25
UK Auditing Practices Board (APB):
Ethical Standards for Auditors
•
These apply in the UK and cover
auditors only.
•
They are based on the IFAC code but
go further
•
There are five standards
26
ICAS Policy
•
ICAS policy is for there to be one
Code of Ethics – IFAC Code of
Ethics.
•
Does any country really need
separate ethical standards?
27
ICAS Research
•
Taking Ethics to Heart (2006)
(research based recommendations on embedding
ethics more firmly in business and the profession)
•
What do you do now? (2008)
(ethical case studies based on members in practice)
•
Shades of Grey (2009)
(more ethical case studies based on members in
business)
•
Available from ICAS website
28
ICAS Ethical Case Studies
•
Objective is to bring ethical problems
to life.
•
Encourage debate – not all ethical
issues are black and white.
29
ICAS Ethical Case Studies
•
The following 2 case studies are
taken from “Shades of Grey”.
•
Real life dilemmas faced by
Chartered Accountants in the UK –
mainly focused on Members in
Business.
30
ICAS ethical Case Study 1
•
“To be or not to be a non-executive
director”
•
Discussion and questions
31
ICAS Ethical Case Study 2
•
“Double your money”
•
Discussion and questions
32
Closing remarks
• Courage is the additional key principle/value.
• Isolation - can be a problem for members in
business. Less of a problem for members in
larger accountancy practices.
• However, to do the right thing applies to all
accountants.
• Seek internal and external support when
required.
33
Closing remarks
•
A quote from an old article on ethical
business reads, “making money by being
immoral is short sighted because you’ll
soon be found out. Making money by being
moral will mean you’ll succeed long term”.
•
We have been living in an age of short
sightedness, we haven’t been looking far
enough ahead to make the right decisions.
34
Closing remarks
•
Only by being ethical can be we make
the “right” decisions.
35
Thank you for inviting us to
CICPA to give this
presentation and for
listening
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