September 14, 2022
Accountants wield a deceptive degree of power in an organization. They are the conduit through which a company files its mandatory tax returns and prepares financial statements for public consumption. For this reason, it’s important that accountants and auditors maintain high standards of integrity. Ethics in the accounting profession frequently come under public scrutiny, which means that it is crucial that standards are published and adhered to.
While doctors have the Hippocratic oath, requiring them to do no harm, is there an equivalently universal code of ethics for accountants? The answer is yes and no – there’s no single code, but there are several ethical codes for accountants which combine to provide standards which must be followed internationally.
In this article, we’ll outline the various ethical codes and standard which apply to the accountancy profession.
The International Ethics Standards Board for Accountants (IESBA) is an organization based in New York which has developed high-level ethical standards for accountants. The IESBA publishes these standards, so that professional accountants can be held (pardon the pun) accountable.
There are five main standards in the IESBA code:
1: Integrity. In both professional and business relationships, an accountant is expected to deal honestly with colleagues, employers, third parties and clients.
2: Objectivity. Bias or conflict of interest are explicitly to be avoided, particularly when they might unduly influence an accountant’s actions.
3: Professional Competence and Diligence. An accountant is expected to engage in continual professional development (CPD), keeping up to date with legislative and administrative requirements. They should always act diligently and address issues promptly and professionally.
4: Confidentiality. Given the privileged information they are party to, it’s vital that professional accountants observe the highest standards of confidentiality, neither disclosing unnecessary information to third parties (unless legally required to do so) nor using it for personal gain.
5: Professional Behavior. The final stipulation is that accountant behave in accordance with the law and do nothing to throw their profession into disrepute.
The Association of International Accountants (AIA) enshrines the above five ethical standards within its Constitution. All members are bound to adhere to these principles or face potential exclusion.
Since accountants are so trusted, and so central within an organization’s financial operations, they must be held to a higher standard than almost all other professionals (physicians and lawyers aside). From an accountant’s point of view, violating the principles listed above could lead to the rescindment of their CPA (Certified Public Accountant) License.
While each US State has separate requirements to fulfil to secure a CPA license, the professional standards to be maintained are broadly the same. The American Institute of Certified Public Accountants (AICPA) lists three ethical values it expects its members to adhere to, regardless of which State they are certified in. These are:
1. Integrity. As the AICPA puts it, “integrity requires accountants to be honest, candid and forthright with a client’s financial information.” This entails telling clients the truth, rather than what they would like to hear. This stipulation also incorporates avoidance of personal gain from having access to privileged information. Interestingly, the AICPA admits that there are differences of opinion regarding what constitutes the correct application of accountancy law.
2. Objectivity and Independence. Like the IESBA, the AICPA puts great weight on avoidance of bias, or manipulation which might lead to an accountant behaving dishonestly.
3. Due Care and Competence. Generally Accepted Accountancy Principles (GAAP) are promoted as part of maintaining technical and ethical standards. Accountants should be familiar with these, and, as in the IESBA standards, much weight is put on maintaining CPD and keeping up to date with mandatory reporting requirements. The AICPA recommends that senior accountants should supervise less-experienced ones where lack of experience could lead to errors or omissions.
In a profession as valued as accountancy, maintaining a reputation for trustworthiness, professionalism and confidentiality can make all the difference between being retained or potentially never working again.
Membership of organizations like the AIA and AICPA help accountants self-certify and provide assurance to potential employers. Therefore, it’s vital that members don’t breach any codes of conduct which could lead to their exclusion.
Furthermore, particularly egregious examples of bad or criminal behavior may throw the whole profession of accountancy into disrepute. When the public pick up on news stories of crooked professionals defrauding their employers, or the US government, it can create an atmosphere of distrust and cynicism regarding the profession.
In Australia, the Accounting Professional & Ethical Standards Board (APESB) have established their own Code of Ethics which follows similar principles as the AICPA or IESBA. In fact, it is based directly on the latter’s five ethical standards.
The APES 110 code contains a section applicable to all members (part 1), a second devoted to business members (part 2) and a third part for members in public practice (part three). There is also a section devoted to specific requirements for public practice accountants working as auditors or performing reviews of financial statements (part 4A) as well as other assurance roles (part 4B).
Most recently updated in 2018 for application from January 1st 2020, the APES 110 is a thorough document, running to over 200 pages, including appendices.
The International Federation of Accountants (IFAC) is an umbrella organization linking together over 180 member and associate organizations in 135 regions. IFAC has over three million members and might reasonably be considered the last word in global ethical accountancy oversight.
In April 2018 the IESBA published a revised and significantly revamped Code of Ethics, which IFAC adopted from June 2019. The five basic principles are as listed above. The revision added new provisions concerning non-compliance with law and regulation, colloquially called NOCLAR.
NOCLAR is a framework to inform accountants what they should do if they find themselves caught between the requirements of confidentiality and being asked to do something they know is illegal. NOCLAR makes it clear that compliance will the law comes first and foremost. Securities fraud, tax fraud or non-compliance with environmental regulations are examples of non-compliant behavior which may require an accountant to report such activities to law enforcement bodies.
NOCLAR raises the bar for accountants’ ethical behavior, making it clear that, in cases of profound public interest, it may not be possible to maintain confidentiality. However, an accountant in this situation is first required to report their concerns to management, so that the entity in question has an opportunity to make redress.
In the area of professional competence and diligence (IESBA Standard 3), automated reporting platforms, such as that provided by Liveflow, can be hugely helpful. Liveflow generates reports automatically from live Quickflow data, without requiring additional manual entry. We have dozens of templates covering all manner of financial statements and reports.
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