The International Ethics Standards Board for Accountants released a
The release Monday of the document came after IESBA unanimously approved two new projects earlier this month on sustainability and the use of experts. The sustainability project will provide independence standards for use by all sustainability assurance practitioners, along with specific ethics provisions relevant to sustainability reporting and assurance. The experts project will involve specific ethics and independence provisions to address the use of experts by organizations as well as in the context of audit and assurance engagements, including sustainability assurance.
IESBA has been getting more involved in sustainability issues and in October it released a publication on
"This is currently one of the most relevant topics being addressed by IESBA," said IESBA chair Gabriela Figueiredo-Dias. "We saw this issue rising and becoming inevitable for everybody, and also for us at IESBA. Sustainability is a holistic project, which takes all professionals, sectors, market players, regulators and citizens. Everybody has been requested to play a role."
She cited the United Nations Sustainability Development Goals as providing a way forward. "We are all trying to ensure that what we have now — as a social, economic, etc., model — will transition to a different sustainable model," she said. "But this transition, apart from many other things, takes funding. It's impossible to ensure that transition will happen and be successful without a lot of investment money being channeled into this project."
Estimates of the amount needed vary, depending on the source, but the investment is likely to cost in the trillions of dollars. "Who is going to ensure this funding? Well, of course, business, the financial sector and the corporate sector," said Figueiredo-Dias. "These are the ones who will be able to channel this funding to ensure that the transition will happen. But for this to happen, you need to have something which is critical: trust. The market players and economic players, will not be convinced to put their money into this project unless they trust the companies, models, people, professionals, etc. This is where accountants and auditors have a very strong role to play. It's a modest role if we look at all of those others that will play a role here, but it's nevertheless a very important role because trust depends on information. And information is produced and assured by accountants and auditors. So it is up to the accountancy profession to ensure that with respect to this sustainability information that is needed for investors and decision makers who make capital allocation and funding decisions, it has to be grounded on very strong, transparent, complete, integral information. The ones who have the power and duty to ensure the quality of this information are accountants and auditors when preparing and assuring this information."
She sees a role for the profession in fighting greenwashing as part of its ethical responsibilities.
"Greenwashing is an ethical issue and problem," said Figueiredo-Dias. "Whenever you have information which does not reflect the real situation of the company, or the model or operation, it means one of two things happens — that those preparing this information were not competent enough, they did not put enough due care in their work. And this is an ethical problem about which the ethics code speaks. Or the second option is even worse. They were aware that the information that they are preparing or assuring does not reflect the real situation, but they are somehow trying to bias the user's opinion and the user's understanding of what reality is. This is something which the ethics code speaks about why they can't do that."
IMA ethics report
In October, the Institute of Management Accountants released a separate
"The report offers three recommendations as to how you can enhance your client program," said Kelly Richmond Pope, IMA research fellow for corporate governance and ethics, and a professor of forensic accounting at DePaul University in Chicago. "Management accounts are well positioned to enhance today's compliance programs, because they have an internal understanding of the operations of most organizations. Part of the issue is, for a long time, the compliance function has been siloed away in a legal department, or maybe even under an HR or legal department. But I think that the managerial accountant/cost accounting function is like an internal secret weapon that you could use. These professionals tend to have an inside view of the operations that can really enhance the way a compliance program is rolled out and monitored."
More management accountants are becoming well versed in data analytics techniques, she noted, so they can use those skills to enhance the compliance function by overseeing completion rates and understanding the trends for employees engaging in compliance programs.
"They also can be skilled with data visualization tools such as Tableau that can help articulate the trends that an organization is seeing internally with their compliance program," said Richmond Pope. "Another recommendation that was made is to incentivize more compliance engagement, and management accountants again can help with that. They have a unique understanding of the ongoing operations of an organization from the inside. It takes understanding the inside in order to make recommendations on how the inside runs better."
Another recommendation in the report involves the concept of using gamification techniques to help drive engagement within an organization. "The way management accountants can help with that is they tend to have a better handle on the issues that are faced inside an organization," said Richmond Pope. "Those issues can become great stories that can be used as a foundation for training modules that can be more engaging and more story based, that can help with an organization that's attempting or desiring to enhance their compliance programs."
She has been conducting training programs for her students and at accounting conferences about how to use games and storytelling to teach lessons on fraud detection and ethics. She is beginning to see more accounting departments using data analytics to enhance corporate compliance and fraud monitoring, but the process takes time.
"I think it's a slow adoption because we're very siloed," said Richmond Pope. "You're starting to see that within some organizations, but what it takes is for accountants to get new skills. For example, it wouldn't hurt anybody to take an acting class, to learn how to sell better, speak better, story-tell better. What you're starting to see is this enhanced learning environment that we are a member of now. We have more certificate courses, so there's a way for you to get more skills to help enhance your own personal growth. You're seeing some organizations go in this direction. But what made me really start thinking about the use of managerial accountants in this role is as a professor. When you start seeing firms recruit outside of the accounting department program and the business school, it made me realize that we have to get more skills, we being accountants. Other departments need to be aware of the tools and the superpower that managerial accountants actually have."
Richmond Pope has authored a new book, "Fool Me Once: Scam Stories and Secrets in the Trillion Dollar Fraud industry," which includes stories about fraud reporting and will be coming out in March from Harvard Business Review Press.
"It's really trying to understand the various kinds of whistleblowers," she said. "You can be an accidental whistleblower, a noble whistleblower or a vigilante whistleblower. An accidental whistleblower tends to be somebody that stumbles upon something while doing their job. It's typically someone internal to their organization like a management accountant. An accidental whistleblower, when they stumble upon something, we want to make sure we're encouraging them to come forward. When you are incentivizing a person and creating not only incentives, but a safe space for them to come forward, they tend to do that. A noble whistleblower is a little bit different, because this person has been asked to either turn a blind eye or engage in a fraudulent act, and they report it. They may be on a team that overlooked a safety protocol, and they know that's not appropriate, so they blow the whistle on their team in the process. They don't necessarily identify as a whistleblower, because they're doing the normal course of their jobs. The vigilante whistleblower, however, is the category where we tend to think about people being rats, tattletales, those kind of monickers that we tend to use with that action of whistleblowing. Those people tend to be the ones where it may not have anything to do with their jobs, but they are the ones that will just blow the whistle. They tend to not need as much incentive because they are just believers in justice and they will come forward regardless of whether there's a monetary or nonmonetary award. It's because of how brave and vocal they can be and why people tend to not like them, and call them names like snitch and rat and tattletale because, when you step outside the group, people tend to not trust you. The incentive around whistleblowing is really to bring out those accidental whistleblowers and those noble whistleblowers that are embedded within all organizations because when they see something, you definitely want them to say something. Incentives, whether they be non-monetary or monetary, tend to make a person say something."
Ethics code evolves
Accountants who will be handling the increased demands for sustainability reporting may become whistleblowers if their companies are simply doing greenwashing, which is why the traditional independence and objectivity of accountants needs to be preserved, even when it comes to nonfinancial information about the environmental progress of clients.
"Nonfinancial information is critical to support the sustainability transition," said Figueiredo-Dias. "This information has to be prepared and assure strong ethical principles, the ones that the code of ethics already speaks about, like objectivity, integrity, due care, professional competence, etc. Those preparing and assuring this information have to have at least the same level of skepticism, the same mindset, the same critical approach to the information that they already put into practice for financial information. And this all has to happen in accordance with strong ethical principles because this is a holistic and global project based on cross-border transactions. We must ensure that at least there is a global baseline of ethics principles and standards applicable everywhere, irrespective of the jurisdiction and who is preparing this information. We are not only sure that the code of ethics plays a strong role in this project, but also that it is necessary to adjust what we already have as ethics standards, to make them fit for purpose and professionally agnostic, and make them work for sustainability information as they work already for financial information.
IESBA's International Code of Ethics for Professional Accountants has been undergoing revisions to take into account new developments in areas such as sustainability reporting.
"This is a never-ending story," said Figueiredo-Dias. "We will never be able to say that the code is ready and finalized and it doesn't need to be adjusted. The environment around us is changing very quickly, and so the code must evolve as well. We have to be very attentive to what's happening around us. We have to be able to absorb or integrate contextual changes into our standards as much as needed."
As with the increasing emphasis on data analytics in the accounting function, one area where IESBA has been paying closer attention is technology. "Technological developments are not neutral for accountancy and accountants," said Figueiredo-Dias. "They clearly have an impact on the accountant's work. Technological information is transforming the world and professional services, so we have to make sure that the code is fit for purpose and future proof, and is ready to respond to the impacts of technology on the professional, on the accountant and the accountancy profession, but also the impacts in business that accountants must know and manage when they prepare and assure that information. We are working on some technology-related revisions to the code so that it can remain relevant and fit for purpose as technology advances, and for that we have been undertaking some fact finding, to understand, identify and assess the potential impact of technology on the behavior and the work of professional accountants, and also some to understand the applicability of the code in relation to ethics and independence with respect to these technology changes. We are also concerned about ensuring that not only the standards are adjusted, but also that we provide the necessary material for the users to understand the standards. These are new and different areas, so some technology-related materials in relation to ethics and independence for professional accountants and the wider stakeholder community have been developed for that purpose."
One area where IESBA has been receiving requests for additional support is for more guidance on non-assurance services. Another is the use of outside experts, which IESBA is planning to address soon. "It raises a lot of questions and a lot of uncertainty with respect to the application of independence standards," said Figueiredo-Dias.
Accountants have been dealing with economic uncertainty this past year and that's likely to continue into the new year.
"This is something that we have been addressing from time to time at the board: How much do different economic conditions put different challenges or pressures on accountants," said Figueiredo-Dias. "The temptation is to say that the standards apply, irrespective of the circumstances or the context. We came to the conclusion that the standards are really important for that reason because, irrespective of some specific conditions like war in Ukraine or politics, the standards remain. They are not local, they are global, and they are somehow resistant to externalities. But we can't stick too much to that position. It's true that different economic conditions may put different pressures on accounting. More than having to adjust the standards, there is a need to face ethical dilemmas. It is also proof that these ethical dilemmas are more probable when they arise in very difficult circumstances. It's more about championing the standards as a strong and efficient tool for accountants to manage ethical dilemmas that they will face throughout a crisis. What is important is that accountants are educated and trained with the appropriate sets of ethical principles and standards. They prepare what some call the ethical muscle today to face the ethical dilemma that for sure they will face one of these days. It is particularly important that they first know about the existence of the code and how to apply it, and that they keep informed and continuously educated to understand how these standards should apply in different circumstances and contexts. It's not only about having the knowledge today, but it's about keeping this knowledge updated."
