Trust, Transparency, and Accountability & the Importance of Effective Enforcement Systems
IFAC Professional Accountancy Organization Development & Advisory Group | August 31, 2020
During the IFAC Professional Accountancy Organization (PAO) Development & Advisory Group meeting, Group members, many of whom have worked for or closely with PAOs and accountancy regulators at national, regional, and international levels, discussed the importance of confidence in the accountancy profession and investigation and disciplinary (I&D) systems operated by PAOs. This article is based on the advisory group’s discussion on the important role PAOs hold for investigating and disciplining professional accountants as part of meeting their public interest mandate.
IFAC recently issued several calls to action for the accountancy profession to uphold its public interest mandate, including public interest responsibilities, preserving and strengthening public trust by reporting fraud risk, and maintaining public confidence as economies navigate the COVID-19 crisis. Trust, transparency, and accountability go together. Compliance with adopted standards and an ethical work environment must be reinforced by investigative and disciplinary systems when necessary. Where non-compliance or misconduct are discovered, the public must be confident in the systems designed to hold professionals accountable.
This is where a professional accountancy organization’s (PAO’s) well-functioning, comprehensive investigation & discipline (I&D) system comes in. IFAC’s globally-accepted I&D benchmark for PAOs (Statement of Membership Obligation 6) sets out best practices for three key aspects of any I&D process: investigation, discipline, and appeals. Although the benchmark was set in 2012, IFAC’s International Standards: 2019 Global Status Report revealed that I&D has one of the lowest rates of full adoption. Only 22% of jurisdictions operate an I&D system that fully meets the benchmark.
The global regulatory focus on private sector standards and related quality assurance review systems have historically overlooked due consideration for a complementary effective enforcement mechanism. As both governments and business face greater demands for accountability with the rapid release of emergency funds, PAOs, regulators, and other stakeholders should make time to re-evaluate their national I&D procedures to ensure the effectiveness of those procedures as we move forward in the “new normal”. An effective enforcement system relies on all actors adopting best practices.
Prior to COVID-19, IFAC’s data showed that PAOs were encountering persistent challenges in establishing a robust I&D system, such as:
- adequate legal authority to implement all necessary changes;
- appropriate financial resources and capacity to implement changes;
- opportunity to learn from others and exchange knowledge and experiences; and
- the globalization of profession.
New challenges such as arranging virtual committee/panel meetings, fair timeframes for holding hearings and processing cases, and determining how to provide support or issue a disciplinary action from results of remote quality assurance reviews might now need to be addressed.
Broken down, IFAC’s I&D benchmark has nineteen distinct best practices for an appropriate I&D system. However, a jurisdiction’s regulatory framework has a significant influence over the set-up of the investigative and disciplinary mechanisms for the accountancy profession. In many countries, PAOs are not the only “enforcer” as other regulators of the accountancy profession exist (e.g., an audit oversight body, another PAO, etc.). Each regulator may establish their own I&D procedures according to their respective legal authority. This may limit a PAO’s ability to determine their own timeframes for handling cases, tracking the progress of cases, and making disciplinary decisions publicly available. It necessitates collaboration, communication, and a liaison process between all regulators to achieve an I&D process that completely meets SMO 6 best practices.
Further, the population size of jurisdictions can create financial and human capital challenges in implementing a two-tiered system of investigation and discipline and ensure that individuals are independent of the cases they hear. Smaller jurisdictions tend to feel this burden more so than populous ones and it can be quite costly to implement measures that demonstrate a commitment to independence—for example, retaining legal professionals to sit on disciplinary cases.
As the world and profession become more globalized and commercialized, PAOs face demands to balance a duty to their members (essentially clients of the organization) and their public interest mandate. For example, as traditional and social media increases its reach, PAOs must re-evaluate their approach to investigations. Do they investigate only complaints or also information learned from media? Moreover, as professionals begin to move more frequently across borders, the transient nature means that PAOs are potentially trying to investigate and discipline members that are working in or move to another jurisdiction. So how can PAOs take action?
Appropriate process for liaison with outside bodies:
Stakeholder engagement is crucial to successfully implementing I&D procedures. In the first instance, PAOs can work with regulators to set the right tone at the top—i.e., advocating for a strong ethical culture and behavior in the workplace, which ideally prevents misconduct cases from arising.
- The Union of Accountants, Auditors and Financial Workers of Federation of Bosnia and Herzegovina (UAAFWFBH) in partnership with the Tax Authority of the Federation of Bosnia and Herzegovina has invested significantly in developing a collaborative approach.
- PAOs have also partnered with governments and supreme audit institutions (SAIs)—this was vital during the Ebola pandemic in Sierra Leone and Liberia—to monitor the real-time use of funds and advance transparency.
PAOs should also establish a clear communication channel amongst regulators to ensure that there is no duplication of efforts in investigation and sanctioning the same case and that sanctions, if needed, are applied proportionately by all regulators involved. A national database that captures past and pending investigations and decisions that is accessible by relevant regulators could be one solution.
Ensuring that the public is aware that an investigative and disciplinary system exists in the jurisdiction:
Moreover, with increased communication and collaboration, PAOs could tap into regulator resources and platforms (such as existing websites) to help make complaint procedures and results of proceedings more publicly visible. Additionally, PAOs can reconsider how they provide complete guidelines on filing a complaint and subsequent steps on their own websites. Some institutes post these procedures but within a private, members-only section of its website. This can limit trust-building and PAOs may consider moving this necessary information to publicly accessible pages of its site.
Including professional accountants as well as non-accountants:
- With just over 1,500 professional accountants in the Caribbean country of Trinidad and Tobago, independence in the I&D system is a tough task. The Institute of Chartered Accountants of Trinidad and Tobago (ICATT)’s rules stipulate that the Disciplinary Tribunal—a panel of 8 individuals—comprise at least two non-accountants. To ensure this diversity, ICATT has created a Disciplinary Proceedings Panel: a pool of 30 members inclusive of six non-accountants and at least six attorneys-at-law that can be drawn upon to serve on the Investigations Tribunal, Disciplinary Tribunal, and Appeals Tribunal. In instances where an individual might need to recuse themselves due to independence or conflicts of interests, other volunteers can be brought into the matter.
Exhibiting independence of the subject of the investigation and other related parties:
- Operating in another small Caribbean jurisdiction, the Cayman Islands Institute of Professional Accountants (CIIPA) faces similar obstacles to independence and bringing in non-professionals to the process. CIIPA addresses the issue by working with law firms to retain and leverage their services and expertise as needed throughout the disciplinary process. The cross-sectoral and professional collaboration also demonstrates CIIPA’s commitment to the public interest and stakeholder engagement.
- The Institute of Chartered Accountants of Nigeria (ICAN) has also established a Legal Department as part of its administrative structure, bringing lawyers’ expertise to the procedures as well. At the investigation stage, they provide support services and legal advice and guidance for the Investigation Panel’s procedures. At the disciplinary stage, they serve as the registry for all legal processes for the Disciplinary Tribunal.
Adopting an “information-based” approach:
- It can be difficult to assess potential enforcement issues when it is on an information basis but PAOs must consider both their public and member interests. The Institute of Public Accountants (IPA) in Australia has implemented a swift response to information regarding a member’s actions: it will suspend members’ license upon investigation. Perhaps controversial, the IPA has instituted the policy to act quickly and protect public interest as inaction poses a risk to the reputation of the institute and the profession at large.
Timeframe targets for disposal of all cases:
- Timeframe targets for handling all cases help avoid delays that could be unfair to the complainants and defendants alike. At the same time, adhering to a timeframe for the sole purpose of expediting the case could detrimentally impact the quality of the outcome and if an investigation becomes a civil or criminal matter, PAOs might have little control over the procedures. The UAAWBFH has worked to accommodate both matters by stipulating a six-month timeframe for handling all cases, with the permitted exception of those that rise to a civil or criminal matter that is addressed in a higher court.
The current method of transcribing proceedings can also contribute to unnecessary delays. PAOs might consider digitalizing their transcription process with transcribing software to support reasonable timeframe targets and reduce costs.
The Confederation of Asian and Pacific Accountants (CAPA)’s Investigation and Discipline Guide provides an excellent roadmap for PAOs looking to review and strengthen their procedures.
Clearly, the I&D space is complex and warrants further exploration of challenges and best practices. Strong and credible I&D procedures can help everyone walk away with a more trusted view of PAOs and the accountancy profession. Confidence in the entirety of our financial system during a crisis is the fastest path to recovery after a crisis.
Does your PAO have a story on overcoming challenges related to strengthening the I&D system in your jurisdiction? IFAC would like to feature it alongside:
- ACCA’s Alternative Dispute Resolution Approach to the Investigation & Disciplinary Process
- If There Is a Poor Public Perception of Disciplinary Processes, Is It Truly Serving the Public Interest? How ICAP Made a Good I&D System Great
- Investigation and Discipline in Mauritius: Making Change Through Cooperation