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Ethics and Trust
by Gary Pflugrath, Director, Public Policy & Regulation, IFAC | June 2, 2014 | 3
At the recent Organisation for Economic Co-operation and Development (OECD) Forum, Resilient Economies for Inclusive Societies, one of the three key themes was Trust. So what does trust mean for the accountancy profession?
In one of the concurrent sessions at the Forum, an eminent speaker suggested that one problem we have in the world today is that many of our institutional arrangements—including many pieces of regulation and legislation—are founded on the notion of “mistrust,” rather than “trust.”
And that raises an interesting question: does the accountancy profession benefit from, or is it disadvantaged by, the focus on mistrust?
The most obvious example for the accountancy profession is the mandated audit. That is, if society trusted companies to furnish appropriate and materially accurate financial information, there would be no need for mandated audits. Indeed, those companies that voluntarily complied would be signaling to the market that they have nothing to hide.
But the notion of trust for the profession brings to the fore the importance of the Code of Ethics for Professional Accountants (the Code)—both its very existence and the obligation imposed on professional accountants to comply with it. What better way to signal to the rest of the world that the accountancy profession is serious about its responsibilities, and that professional accountants can be trusted, than through the Code.
The Code says to the world that professional accountants are competent to do what they say they will do, and that they will behave professionally, and with due care, integrity, and objectivity. Then, who other than professional accountants are as well placed to assess, review, report, and assure the critical information that provides the basis of important economic decision making? Indeed, they have a critical role to play in promoting the resilient economies and inclusive societies for which the OECD is striving.
If this is true, then the Code is fundamental to addressing some of the notions of mistrust in society.
But can more be done? What more do you think the profession should be doing to promote trust?
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July 10, 2014
Trust is a fundamental relationship between client and the professional accountant. The professional accountant must be trustworthy before the trust relationship can be build. Thus compliance with the Code is of utmost importance to the public when expressing trust in the profession, but likewise of great value for the individual member of the accounting profession when offering her services to clients. To my mind, if the profession and the individual professional accountants do not appear to be trustworthy, the raison d'tere for a professional firm is not given.
The demise of Arthur Andersen was clearly based on the collapse of the trust that client and the public had in their services and this loss of trust spread to the profession as a whole.
The profession has the benefit of a well thought out combination of rules and guidance shown in the Code. Compliance with the Code is obligatory and rules contained in the Code are therefore mandatory. The use of guidance is also compulsory, however, it is in the decision making in regard to guidance that the professionalism of an accountant shines through. The making of decision in terms of the Code, referred to as "Ethical Conflict Resolution", is much more demanding than following the rules contained in the Code. We should take care not to change the balance between rules and principles in favour of rules, because that will decrease professionalism and the professional's freedom of choice. But at the same time it is essential that we, as the professionals in the field, ensure that we and our firms comply with the requirements of the Code.
Lisa M Bowyer
July 7, 2014
Codes and sometimes Regulatory Rules are easily devalued when not enforced and so it is critical that monitoring and enforcement mechanisms are place for issued codes and rules. I hear many professionals refer to 'codes' and sometimes 'guidance' as binding and this indicates the regulatory risk tolerance of the person. However, it may be that compliance with codes can become excessive and counterproductive when regulatory risk is considered a priority over other risks. As a regulatory policy maker my opinion is that Codes and Guidance are best used when the policy maker realises that she cannot foresee all situations that may arise and thus they are not designed to be prescriptive nor expected to be binding. There is an equitable maxim 'Equity does nothing in vain" which acknowledges that when applying principles rather than rules, there are times when enforcement must draw the line and not seek or expect to enforce that which cannot be enforced. With respect to trust and mistrust, the purpose of a Code is to set a minimum standard that ensures that those that would act ethically in the absence of the Code are encouraged to continue since the Code will ensure those who would not otherwise act ethically must do so. So Codes have a place and do not automatically suggest that those to which is applies cannot otherwise be trusted.
June 10, 2014
The premise that our institutional arrangements are largely built on a notion of mistrust is both interesting and hard to dispute. Inevitable really, as individuals and institutions who the public ought to be able to trust, and have trusted, have fallen short of our expectations far too often over the years. In terms of our own profession, you rightly state that the Code is fundamental to addressing some of these notions of mistrust. But the Code itself can only ‘talk the talk’; it’s down to individuals to live by it and ‘walk the walk’. The mere fact that the audit profession is subject to independent oversight testifies to the fact that, no matter how well we design our rules and regulations, we can’t always be trusted to follow them. Why is this? Obviously education has a role to play – no point having a Code if we don’t know what’s in it! But, to anyone with a reasonable degree of integrity, much of the Code is intuitive anyway. Beyond that, the answer must lie in what drives behaviours in our professional lives, for example the culture of the organization, perhaps also its structure, the pressures we’re expected to deal with, the incentives and rewards dangled in front of us, and so on. Any change of this nature is likely a slow process, and one which must be believed in, and driven for the long term, by the organization’s leadership, not just by words but also by actions and by example. Back in 2007 the Forum of Firms’ issued an excellent paper, “Tone at the Top and Audit Quality”, which began exploring some of these factors insofar as they impacted audit quality, and how firms might be able to address them. Naturally, many of these factors drive ethical behaviour too. In the years since this paper was issued, there have been many advances in this field, largely led by the work of the independent oversight bodies. Perhaps it’s time for an updated thought-piece to be issued by the Forum, which could complement the work of the IESBA with regards to the Code and help create a platform upon which our professional bodies and firms, in consultation with other key stakeholders, can work together to develop a comprehensive plan of action to help embed ethical values into our daily work. Easier said than done, I know...
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