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Ethical standards and business confidence
Consistent ethical standards globally are vital if the accountancy profession is to retain the trust it is has striven so hard to achieve since the Enron and Worldcom scandals, and finance professionals cannot exist by technical knowledge alone, argues Peter Williams
One of the biggest problems facing the accountancy profession across the globe is how to teach ethics to those entering the profession, and how to ensure that the ethical standards and behaviour of senior professionals are as fresh and relevant as technical knowledge. Professional accountants cannot exist by technical knowledge alone; they have to possess and apply that within a framework of professional values, ethics and attitudes.
According to research by the International Federation of Accountants (IFAC), conflicts of interest, including self-interest threats, are most commonly faced by accountants in public accounting practice, while earnings management is the most common ethical threat for accountants in business.
The research goes on to suggest that ethics failures occur for several reasons: because of a lack of objectivity and independence; improper leadership and poor organisational culture; a lack of ethical courage to do what is right; a lack of ethical sensitivity; and failure to exercise proper professional judgment.
Pointing out what is wrong is only half the battle; it is perhaps more difficult to decide what ethics education should be taught and how. The consensus that is emerging is that ethics should be taught (and learnt) as a part of lifelong professional learning.
Attitudes to ethics education is changing. It is now largely accepted that ethics has to be taught as a dedicated unit within pre-qualifying programmes as well as integrated themes within other subjects. Casting my mind back to my time as an accountancy student in the UK in the middle of the 1980s, I cannot remember a single dedicated training element which encompassed ethics. Maybe it featured in the formal audit training. Nor can I recall any on-the-job ethics training. Nearly two decades on, such a whimsical attitude still appears to exist. The IFAC research suggests that the approach of professional bodies across the globe to continuing professional development (CPD) ethics education is conservative, with the most frequent response being that ethics development is generally encouraged.
IFAC wants to bring that into sharper focus by proposing an Ethics Education Framework (EEF) encompassing all levels of knowledge, split into four building blocks: knowledge, sensitivity, judgment and behaviour.
Getting ethics education right is a crucial part of continuing the restoration work on the image of the profession following the accounting scandals at the turn of the century. The accountancy profession has to believe that ethical standards of individuals can be changed and improved. The lack of focus on ethical education is astonishing if you consider that the justified criticism the profession has faced in the wake of corporate failures is not down to technical failures of getting the sums wrong, but of either acting wrongly, or at least not acting correctly. The ethical issues include a lack of independence, creative accounting, aiding tax fraud and evasion, and a failure of the duty of care towards shareholders and the public.
While it is clear that the role of ethical education will have to be placed higher up the accountant's educational agenda, one crucial question remains: are we clear what we mean by ethical behaviour? Is there an absolute set of principles here or are we in the field of ethical relativism, where what is right or wrong and good or bad is not absolute but variable and relative, depending on the person, circumstances or social situation? Do ethical standards change over time and place?
Many in the accountancy profession would answer that by suggesting that the ethical framework is defined by the five fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.
Those five fundamental principles are the starting point. But, perhaps frustratingly for accountants, there are no black and white, right or wrong answers. And that is why ethical education has to be kept as up-to-date as knowledge about specific tax laws or auditing standards. Accountants have to ensure that they examine and question their ethical behaviour just as often as they check up on their technical skills. Otherwise ethics will remain the profession's Achilles' heel.
Reference
IFAC's International Accounting Education Standards Board has produced an information paper, Approaches to the Development and Maintenance of Professional Values, Ethics and Attitudes in Accounting Education Programs. www.ifac.org/Guidance/EXD-Details.php?EDID=0058
The Consultative Committee of Accountancy Bodies (CCAB) has produced a report on ethics education. This can be found at www.ccab.org.uk/documents.php
Professional ethics is embedded in ACCA's professional syllabus, in particular, its Professional Ethics module.
Peter Williams is a journalist and a chartered accountant. He writes on accounting, financial reporting and auditing issues.
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