Presentation on theme: "Macedonia Repairis Project IFAC Code of Ethics – scope, meaning, relevance, importance and what it means to you Liam Coughlan BBS(Acc), MSc(Acc) FCCA,"— Presentation transcript:
Macedonia Repairis Project IFAC Code of Ethics – scope, meaning, relevance, importance and what it means to you Liam Coughlan BBS(Acc), MSc(Acc) FCCA, ACMA - Irish
IFAC Code of Ethics – implementation challenges in Macedonia »Cultural Factors – past traditions of accounting and control, rules based »Accountants poorly paid, poorly valued »Controllers became auditors. First emergence of EU audit firms in Macedonia probably attracted best clients. Why? »Audit Industry is a sophisticated business model in its own right, so worth examining briefly the historic development of the auditing profession, in order to identify which aspects of successful best practice may be imported/adapted to support the economy of Macedonia
OBSERVATIONS »Professional bodies can act in own interest or the public interest. »IFAC principles represent culmination of historical development of profession, and source of best practice »Key factors: expertise and integrity »Minority of members who breach this understanding are excluded from the profession, as the implied contract with public is broken »Ethics a core element of profession, another being willingness of PB to self-discipline, with or without oversight
Trade Association or Professional Body »Trade Association promotes the interests of its members »Lobbies for changes that will increase the value of members work »Sometimes gets involved in politics »PB carves a niche for itself as a group of self-regulated persons of learning, advancing the cause and benefits of their expertise and integrity
Development of profession »Historical context – accounting bodies originated in UK »Emulated in other developed western economies (Australia, Canada, USA, Europe) but adapted to fit with legal and commercial cultures »Example: in UK the Royal Charter granted unique powers for PBs to regulate their members. In the USA, CPAs regulated by State Boards of Accountancy »Managed self-regulation permitted under EU 8 th Directive, (Independent oversight) »Systems of organization of accounting profession more identical in common law countries »Elements of common law structures exported/imported into civil law/transitional economies with mixed results
Who are you? »Attending this course as the Gazette says you must in order to maintain audit license? »If the CPD events did not exist, would you feel a need to do CPD anyway? »Are you part of a strong group of persons who feel that professionals should come together, form a CoA, and ensure that it supports you in your professional work or development
Lets consider Dr A with Auditor B »Standardised approach to assessing patient »Judgement and experience leads to initial prognosis »Testing initiated »Results explained, specialist involved »Patients diagnosed with cancer »Ethical issue: Patient will consume scarce intensive care bed, and will certainly die »Patient express wish to avoid machine ventilation
Auditor B »Standardised approach to assessing company »Standardized approach to evaluating internal controls »Testing initiated, directed at sensitive transactions also »ISAs followed »Opinion issued »Auditor paid »Subsequently company collapses »Employee who lost job is stressed, gets heart attack and ends up with Doctor A
What are ethics? »What people do when nobody is watching ? »internal values and rules applied by individual? »external rules or principles imposed on individuals? »Integrity »Objectivity »Competence and due care »Confidentiality »Professional behaviour
Fundamental Principles »Apply to accountants in all sectors of economy »Are even more important in transitional setting, as the modern profession is new and establishing its value in society, and its critical role in economic development »Must be observed and seen to be observed »For this reason Chamber of Auditors needs a disciplinary system (guidelines in SMO) that is effective and operated well »Employers and clients are paying a premium for trust, and setting up a mechanism that assures the public that the profession is vigilant (and cares about serving the public interest) will enhance your credibility and value in the marketplace
FP - Integrity »100.4.A »Straightforward and honest in all professional and business relationships »Do not prepare or submit information that is false, misleading, whether by commission or omission »Do the right thing, because its the right thing to do
FP - Objectivity »100.4.B »Do not allow bias, conflict of interest or undue influence to affect professional or business judgement »Implies independence of mind and action. Should be, and appear to be objective. Avoid relationships that will compromise this
FP – Professional competence and due care (100.4.C) »Work in accordance with standards »Maintain required knowledge, skills and competences »Due care a unique UK legal concept – implies diligence and competence »Standards, Laws and best practice applied »Know your limitations, use experts as needed, take responsibility for work of your staff. »And not negligence
FP - Confidentiality »100.4.D »Respect confidentiality and only disclose information as required legally or professionally »Cannot use confidential info for personal gain »This applies in social settings also, and not only business settings »Think of it, how would you feel if your medical doctor was a gossip? !
FP – Professional Behaviour »100.4.E »Comply with applicable laws, standards and guidance »Do not act to bring the profession into disrepute »An attack on one is an attack on all – its OK to argue, debate and complain, in private or public, but apply judgement, reasoning, and observe this principle.
Question for coffee break 1 »Auditor A talking at (1) seminar of auditors and (2) in the cafe with non-accountant friends – says the following about Auditor B: »- he is an idiot »- his audit firm sells audit opinions for EUR 500 »- I am a much better auditor than he is »- We are the cheapest and best firm in Skopje »- My expertise is greater because I scored 99% in the exam, and he achieved only the minimum pass mark Which of the above statements, in which setting, does not breach the fundamental principle of professional behaviour?
Threats and Safeguards »Life poses temptations, fears and situations (threats) »It is not possible for state or professional organisations to watch and monitor the ethical behaviour of accountants in real time »Therefore, safeguards are needed. Examples: »Laws, regulations imposed by the Government »Ethical and professional requirements established by the Chamber of Auditors »Rules implemented at firm and engagement level (audit firm) or by Employer organisations (rulebooks) »Enforcement
Threats and Safeguards
Threats – Self Interest »Financial interest in client »Reliance on client for fees »Fear of loss of client »Fear of loss of job, or demotion »Close business relationship with owners/managers »Close personal relationships
Threats – Self Review »Reviewing your own past mistakes! »Reviewing systems you developed »Reviewing organisation where you worked before
Threats – Advocacy »Promoting investment in a company (purchase of shares for example) »Helping a client to defend or win a legal case, based on your opinion or work »General temptation to apply principles and judgement in biased way, to advocate a position
Threats – Familiarity and Intimidation »Hospitality and gifts »Close personal ties/relationships »Intimidation includes pressure to cut corners, ignore corrupt acts, threat of being sued, threat of losing job
Client Acceptance - implications »Money laundering »Illegal /questionable activities »Questionable reporting practices »If new appointment, check reasons for change – could a threat exist? »Avoid – threat to compliance with principles
Engagement acceptance - implications »Are you (firm) competent to provide the requested services »If not - avoid – threat to compliance with principles »Fees quoted may be lower, but engagement must be adequately staffed and expensed
Engagement acceptance - implications »Is your client at war with other clients? »Are you competing with the client, directly or indirectly, through your involvement with third parties (other clients) »In other words, avoid conflict of interest including perceived conflicts
Fees for professional services »Quote whatever fee deemed appropriate (no rule stating that all auditors should quote same fee for same assignment) »If fee is so low, a threat to professional competence and due care may be created »Explain fee structure in terms of engagement/relate to staffing
Commissions and other fees »Disclose to client if you pay or receive referral fees »Disclose to your client, and agree any fees/commission you may receive from sale of other goods/services to client by 3 rd party »Overall aim is to be transparent, upfront, honest, open and avoid perceptions of unprofessionalism
Marketing professional services »This is prevalent in region! »Exaggerated claims relating to services offered or qualifications »Defamatory, libellous or unfair negative claims about another auditor or firm »Market positively, not negatively. Sell the profession (expertise and integrity)
Custody of client assets (Sect 270) »No, unless your firm acting as trustee under insolvency related law »Keep assets separate from firms »Use only for lawful intended purpose »Account for same in real time »Strictly comply with law relating to holding/accounting for such assets
Safeguards for public practitioners: »Withdraw from engagement/team »Supervisory procedures »Termination of financial or business relationship that causes threat »Discuss with senior management of your firm »Discuss with senior management of client
Independence – public interest: »Independence of mind allows auditor to act with integrity, exercise objectivity and professional skeptism »Independence in appearance means that third party (investor etc) would not reasonably conclude that independence has been compromised »CORE REQUIREMENT (S 290)
Independence – contd/audit: »BANNED – capacity to influence f/s and performance of company. You are supposed to be the independent auditor....! »Unpaid fees – clear before issuing audit report, or engage another auditor for review (avoid bias), or consider if outstanding fees amount to loan, in which case, reappointment an issue....
Independence – continued »BANNED – contingency fees (i.e. amount of fee contingent upon a particular outcome). Imagine this if applied in medical situation.... »IFAC Code is principles based, and professional bodies free to create specific national rules that reflect allowable or disallowed specific practices
Accountant in business-challenges »Pressure to breach law, standards, allow unethical or illegal earnings strategies, lie to auditors and/or generally be used to justify unethical conduct »Pressure to create false/misleading information for tax administration or other regulatory purposes (raising loans etc)
Professional accountants in business »Raise issue with management »Escalate if needed »Discuss confidentially with professional body »Take legal advice if needed »If all else fails, jump ship. »This is greatest challenge in economically challenged states
Coffee Break 2 »Given structure of profession in former Yugoslavia (independent accountants and payment bureau auditors), what can the modern profession do to change public expectation of role of accountant and auditor? How can profession market expertise and integrity, and encourage understanding/compliance with SMOs?
Strategies to implement IFAC Code of Ethics »Members of CoA should encourage formal adoption of SMOs »CoA should adopt, implement and communicate an I & D system, and be seen to implement it in the public interest »Develop specific rules that reflect reality of practice in Macedonia, accord with CoA and publish same
Elements of an effective I & D scheme »Members of CoA should encourage formal adoption of SMOs »CoA should adopt, implement and communicate an I & D system, and be seen to implement it in the public interest »Develop specific rules that reflect reality of practice in Macedonia, accord with CoA and publish same
IFAC SMO6 I & D »Embed in CoA Statute – misconduct = » Criminal activity; » Acts or omissions likely to bring the accountancy profession into disrepute; » Breaches of professional standards; » Breaches of ethical requirements; » Gross professional negligence; » Cumulative impact of less serious breaches » Unsatisfactory work
IFAC SMO6 I & D – range of sanctions »Loss of practice rights (a) »Reprimand (b) »Fine/payment of costs (c) »Loss of title (d) »Exclusion from membership (e) »(In CoA Macedonia, (a), (d) and (e) are effectively one sanction, whilst (b) new and (c) potentially unenforceable unless in conjunction with threat of (a)
IFAC SMO6 I & D – implications ( CoA) its rules should.. include all powers necessary to enable authorized personnel to carry out an effective investigation…and (a)require members (and member firms) to co- operate in the investigation of complaints and to respond promptly to all communications from the member body, and (b) provide for sanctions in the event of failure to comply the investigative and disciplinary processes.
IFAC SMO6 I & D – implications 2 Investigation (independent) Discipline (separate process, independent) Due Process (right of representation, appeal etc) Time limits for closure of cases Track cases, document proceedings, confidentiality the investigative and disciplinary processes.
The end is nigh.....we did not cover »Theory on ethics (with relevant extracts from philosophy, history, morality and culture) »Decision making processes (models developed by US, UK, Australia etc) »Specific country systems »Example specific PB rules »How to balance individual and corporate ethical dilemma »Whistle blowing
The future is brighter »CoA has choice of models for successful implementation »Selling promises is easy, delivery hard »If we do not hang together, we shall be hanged separately »Whistle-blowing can serve the public interest »Don't shoot the messenger
»ICAI transformed, why (Canning & O Dwyer) »ACCA globalised its capacity to enforce its codes and standards »IFAC has fantastic courses on ethics, on line, free »Professor Barry Cooper at RMIT a leading expert, and many links from his paper and webpage to cases and implementing examples Great resources in IFAC website
What key lessons learned »Mess it up for yourself, and you will probably get away with it for a while »Skopje is small »If you are an older practitioner, think of the next generation »Fundamentalists will win »Code is a self- protection mechanism for all professionals »Will gradually develop new culture for profession
Thanks and questions »Thank you for your attention and involvement »Before you make up your mind, open it »Aim was to highlight IFAC Code, and focus on elements within that I know from experience are difficult to properly implement in society/Govt in Macedonia
More information »IFAC has provided a Guide to ISA for SMP (08) and a Guide to QC for SMO (09) – all relevant to Macedonia »Growing attention, assistance and guidance for SMPs »Greater focus on SMEs (many of your clients) and debate about public interest benefit of FR/Audit »(See EC Proposed new 4 th directive)
Last Slide – your questions »Barriers to implementation of SMO 6 in Macedonia? »What can community do overcome them? »Your questions......?