This article was first published in the October 2018 China edition of Accounting and Business magazine.

I remember moderating a roundtable discussion in Hong Kong where the CFO of a manufacturing company that had recently become part of a US conglomerate recounted how the enterprise had to stop giving its customers boxes of mooncakes. ‘We were told not to accept mooncakes either,’ she said incredulously. Headquarters thought the practice violated the spirit of the US Foreign Corrupt Practices Act.

That story recently came to mind after the International Ethics Standards Board for Accountants (IESBA) revealed in July new enhancements to its global ethics code around the boundaries of acceptable inducements, released in April and effective from June 2019.

So does this mean it’s OK to give and receive mooncakes? It depends. The approach the IESBA has taken is to characterise ‘inducement’ – which can be an object (gifts, political or charitable donations), a situation (employment or other commercial opportunities) or an action (appeals to friendship and loyalty) – as neutral by itself.

The offering or accepting of inducements poses a threat to the accountant’s ethics if it is made with the intent to improperly influence someone to act in an unethical manner. The judgment of the existence of such intent is made by the professional accountant, who can rely on the conclusion of a third party that the accountant considers a reasonable and informed person.

If there is intent, the accountant must not offer or accept even a trivial or inconsequential thing such as a box of mooncakes (or encourage others to do so). But if there is no intent, the mooncakes may be offered or accepted. ‘If the inducement is trivial or inconsequential, any threats created will be at an acceptable level,’ according to guidance by the IESBA.  

To my mind, the IESBA’s approach is a serious attempt at balancing the need to stamp out graft and corruption with the desire to respect cultural practices and relationship-building. Some may argue that it could have listed what is acceptable and what is not (a holiday trip, no; mooncakes, yes), or prohibited the offering or acceptance of inducements altogether. But that’s not the way the world works. Cultural practices are important in business and in nurturing relationships. And drawing up a list of what is and is not acceptable could become an endless nightmare. Arguably, avoiding a prescriptive approach in favour of one based on whether there is an intent to improperly influence behaviour is the more practical course.

What the enhancements do, however, is place the onus squarely on the accountant to decide whether an inducement fails or passes the intent test. So how do you objectively assess the intent of another person? You must exercise professional judgement, says the IESBA, which has taken pains to provide glossaries, flowcharts and the reasonable and informed third-party test.

We will find out how well it has done its job – and how committed professional accountants are to ethics – come June 2019.

Cesar Bacani is editor-in-chief of CFO Innovation