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We Are IESBA—Interview with Peter Hughes

Jun 15, 2015 | English

Peter Hughes has been a member of the International Ethics Standards Board for Accountants (IESBA, the Ethics Board) since 2010. He is currently a partner at KPMG in the UK, where he heads KPMG International's Global Independence Group. He is responsible for overseeing ethics and independence policy, guidance, and training for member firms of KPMG International.

Can you talk a little about your background?

PH: I’ve worked in the accounting profession my entire working life, initially as a trainee accountant and auditor, then involved in transactions work, and most recently professional ethics. At various stages in my career, I have been involved in technical roles within my network of firms so have had the benefit of seeing a wide range of challenges faced by accountants and auditors, relating both to technical and ethical issues. During that time I’ve seen an enormous increase in the volume and complexity of professional standards and can appreciate the challenges that professional accountants face in trying to comply with those standards. I’ve always felt though that accountants recognize the responsibilities they face as professionals and the privileged position they hold in society. However, public expectations of accountants and the technical standards they work to are continually changing, so it’s enormously challenging. I believe that accountants recognize they need to do the right thing, but exactly how to achieve that can be open to debate. So this led me to having a particular interest in ethical issues.                                        

What has been the most rewarding part of serving on the board?

PH: I would say that working on the development of professional standards with an international team and seeing how people approach the task from many different cultural and intellectual perspectives has been the most rewarding. There are few absolutes, but trying to find the common ground or the right balance is very satisfying. This was particularly true of the Conflicts of Interest project that I worked on, but has been true of all the many projects I’ve been involved with during my time on the board.

A lot of people will say that an ethical culture starts with the tone at the top. Do you have any advice for leadership to instill a culture of ethics at their company or practice?

PH: Experience has shown that one can have all the ethical codes and standards one likes in an organization, but unless the leadership “walks the talk,” they won’t make much difference. In my personal view what is crucial for setting the tone of an organization is for the leadership to be prepared to speak out on the core values of the organization—obviously to embody those values themselves, but also to have an open and consultative style and the ability to act when things aren’t right.

Do you think that ethics standards can help prevent accounting and other forms of financial fraud?

PH: I definitely think they have a significant role to play. There are no doubt ambiguous messages about the role of accountants, particularly auditors, in safeguarding the public interest and in some quarters, a significant expectation gap as to what they can achieve. It’s critical that ethical standards for accountants establish a clear expectation, and where appropriate requirements, as to how accountants should behave; and, most importantly, the part that they can also play in helping others to do the right thing. But there needs also to be an understanding of the limitations of what professional accountants can achieve and that they are most effective when operating in an environment that is responsive to public interest considerations, including, of course, an effective corporate governance framework.

Have you in your professional life ever faced an ethical dilemma that you weren’t sure how to handle?

PH: In my technical advisory role, in particular, I’ve seen cases where auditors have felt compromised by the conduct of management of the companies that they audit. For me, the challenge is how auditors can act in the public interest while at all times acting in accordance with professional standards. Sometimes the dilemma has been that simply walking away from an audit engagement might be the easiest thing to do and might even be the response suggested by ethical standards. But is this always the best way to protect the interests of shareholders? I think it’s important that ethical standards recognize that resignation does not always serve the public interest. I certainly think that improvements in corporate governance standards and greater opportunity for transparency have helped auditors in meeting their responsibilities, while also being seen to act in the public interest.

A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. What does this mean to you?

PH: This question has been one of the most interesting, but also most challenging, issues that I’ve faced in my time on the IESBA and particularly so when working on the Non-compliance with Laws and Regulations (NOCLAR) project. In the case of NOCLAR, our proposed guidance is intended to help the accountant to see clearly the role they can play to help company management and those charged with governance to address the situation. Our proposed guidance would also help accountants when determining whether disclosure to an external authority would be the proper an appropriate course of action in some cases. We have to recognize though that the responsibility cannot just fall on the shoulders of accountants. They have a part to play—and a significant one—in the whole system of corporate governance, which is designed to protect the interests of stakeholders and the wider public, but they can’t do it alone. 

You are also deeply involved in the board’s project to improve the structure of the Code. What are some of the challenges for that one?

PH: The project to simplify and clarify the language and presentation of the IESBA Code of Ethics for Professional Accountants (the Code) is a fascinating one. Working on the structure and the drafting conventions of the Code brings home just how complex it is, and potentially how ambiguous it might be, particularly when it’s translated into other languages and read by different audiences. But the task of trying to come up with the “mot juste” for a particular word in the Code (in English of course), has taught me the truth of the adage that the US and the UK are two countries divided by a common language! And, I’m sure the same applies no matter which two English-speaking countries you are comparing. Fortunately the task force can draw on the skills of a multi-lingual Board as well as our editor whom we’ve hired as a plain English expert. Together we’re drawing up a list of preferred terms whose meaning we can all agree on. These terms will be used consistently in the Code to facilitate accurate translations. It will be critical that we receive input to our Exposure Draft, which we anticipate will be approved and published for comment in Q4 this year, from as wide a group of stakeholders as possible.