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Ethics Seminar at CICPA

Anton Colella, Chief Executive, TheInstitute of Chartered Accountants ofScotland (ICAS)

Douglas Nisbet, President, The Instituteof Chartered Accountants of Scotland

(ICAS)

2 February 2010

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Ethics Seminar at CICPA - Overview

Introduction Ethics for Professional

Accountants

Case Studies

Final Discussion and ClosingComments

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About ICAS

We have the first Royal Charter givento a UK accountancy body in 1854

High profile members in the fields ofaccountancy and business

Approximately 18,000 members

Excellent reputation worldwide

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What is ethics?

Ethics is concerned with how an

attitude, action or decision is

determined as right or wrong or

good or evil (Donaldson, 1988).

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We all want to do the right thing,

dont we?

Ethics is a global issue

All accountants are facing similardecisions

IFAC code applies globally and is at the

heart of ethics

Local factors come into play inapplication of ethics

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Why Ethics is important

ICAS Public Interest Charter

Ethics and integrity

Ethics underlies judgement in a

principles based accounting regime

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Potential Ethical dilemmas for

Accountants

Monthly financial targets not likely tobe met and/or possible breach ofbank covenants.

Possible manipulation of figures infinancial accounts.

In the UK bonuses/share options foremployees may depend on certainlevel of profits being reached

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Potential Ethical dilemmas for

Accountants

Pressure from client/bank if an auditreport needs to be signed today andthere is insufficient information to

know whether accounts show a trueand fair view

Whether to make people aware ofconflicts of interest in businessdealings.

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Impact of dilemmas Some issues may be trivial but

there may still be a right and wrong

course of action.

Others may lead to severe

consequences as variousaccounting scandals worldwide can

testify.

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Satyam Computer Services

Started as an attempt to disguise a poor

quarterly performance and then got out of

hand.

Manipulation of accounts for several

years.

Impact of scandal on Indias reputation.

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Satyam Computer Services

It was like riding a tiger, not knowingwhen to get off without being eaten. Mr BRamalinga Raju, Chairman and ChiefExecutive

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Case study

You are a financial controller in a medium sizedcompany.

The financial director asks you to follow an

accounting policy for certain types oftransactions which is not in accordance withthe accounting requirements.

In year 1 these transactions are immaterial.

What do you do?

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Case study continued

Assume that you did as you weretold.

In year 2 these transactions are nowmaterial what do you now do - haveyou willingly approved the accountingtreatment can you reverse the

decision?

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Case study continued

Creeping up effect small breachescan lead to greater breaches.

Auditor has to be careful item couldbe immaterial to begin with.

Pay attention to the possible longer-term consequences of currentbusiness decisions.

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Once youve started its like a

runaway train

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Identifying an ethical dilemma

This is the first challenge.

If you cant identify the issue then

how can you do anything about it?

Need for ethics training - students

and qualified accountants.

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Ethical training at ICAS

ICAS students do a 2 day course as partof their training.

Students must pass an ethics assignment

New online training course

What are the requirements for existing

ICAS members?

What are the requirements for CICPAmembers?

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Once an ethical dilemma is

identified what should you do?

Consider the dilemma/circumstances.

Is it a simple black or white matter?

Refer to the ICAS/CICPA/IFAC Code of

Ethics

Refer to your employers Code of Conduct.

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Once an ethical dilemma is

identified what should you do?

Discuss with trusted colleagues orfriends in the profession(confidentiality issues?)

Does your employer have an ethicshelpline?

Discuss with the CICPA?

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Once an ethical dilemma is

identified what should you do?

Ultimately, you must decide yourcourse of action.

Professional responsibility.

How would it look if my actions werereported on the front page of thenewspaper?

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IFAC Code of Ethics

The Code is principles-based but isunder pressure from some countriesto become more rules based.

Shall instead of Should.

Four parts to the Code

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IFAC Code of Ethics key

principles

Integrity

Objectivity

Professional Competence and Due Care

Professional Behaviour

Confidentiality

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IFAC Code of Ethics key

principles

Follow the fundamental principles

Full guidance where applicable

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IFAC Code of Ethics

Having a Code of Ethics is merely astarting point - it is the application of it thatmatters.

Enron had a fantastic ethical code.

However, they never embedded the

proper message.

Tone at the top is crucial.

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IFAC Code of Ethics

At present there is no mandatoryrequirement for qualified members toundertake training in ethics.

This is kept under review.

ICAS has moved to an output basedsystem of Continuing ProfessionalDevelopment (CPD).

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UK Auditing Practices Board (APB):

Ethical Standards for Auditors

These apply in the UK and coverauditors only.

They are based on the IFAC code butgo further

There are five standards

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ICAS Policy

ICAS policy is for there to be one

Code of Ethics IFAC Code of

Ethics.

Does any country really need

separate ethical standards?

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ICAS Research

Taking Ethics to Heart (2006)

(research based recommendations on embeddingethics more firmly in business and the profession)

What do you do now? (2008)

(ethical case studies based on members in practice)

Shades of Grey (2009)

(more ethical case studies based on members inbusiness)

Available from ICAS website

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ICAS Ethical Case Studies

Objective is to bring ethical problems

to life.

Encourage debate not all ethical

issues are black and white.

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ICAS Ethical Case Studies

The following 2 case studies are

taken from Shades of Grey.

Real life dilemmas faced by

Chartered Accountants in the UK

mainly focused on Members inBusiness.

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ICAS ethical Case Study 1

To be or not to be a non-executive

director

Discussion and questions

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ICAS Ethical Case Study 2

Double your money

Discussion and questions

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Closing remarks

Courage is the additional key principle/value.

Isolation - can be a problem for members inbusiness. Less of a problem for members inlarger accountancy practices.

However, to do the right thing applies to allaccountants.

Seek internal and external support whenrequired.

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Closing remarks

A quote from an old article on ethicalbusiness reads, making money by beingimmoral is short sighted because youll

soon be found out. Making money by beingmoral will mean youll succeed long term.

We have been living in an age of short

sightedness, we havent been looking farenough ahead to make the right decisions.

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Closing remarks

Only by being ethical can be we make

the right decisions.

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Thank you for inviting us to

CICPA to give this

presentation and for

listening