Prof. Len Brooks, Rotman School of Management, University of Toronto, 2003 Ethical Guidance for Professional Accountants Well beyond professional codes… Principles – GAAP, GAAS Commonly understood standards of practice Securities regulations Research studies – CICA, FASB, articles Employer’s codes – precedence to prof’s? Codes to harmonize with IFAC Code Which is more important, the public interest, or the reputation of the profession?

Prof. Len Brooks, Rotman School of Management, University of Toronto, 2003 Arthur Andersen’s Troubles  What was the basic flaw in AA’s governance system that permitted the Enron, WorldCom, Sunbeam and Waste Management fiascoes?  What was AA charged & convicted of?  Why did the SEC bar AA from auditing SEC registrant companies?  What would have had to change at AA to save it from further fiascoes?

Prof. Len Brooks, Rotman School of Management, University of Toronto, 2003 Codes of Conduct for Professional Accountants Purpose Guidance so public interest is protected and reputation will not be sullied Why? Service Public trust Credibility

Prof. Len Brooks, Rotman School of Management, University of Toronto, 2003 Typical Framework for a Code  Introduction and purpose  Fundamental principles and standards  General rules  Specific rules  Discipline  Interpretations of rules

Prof. Len Brooks, Rotman School of Management, University of Toronto, 2003 Fundamental Principles and Standards Members should at all times:  maintain the good reputation of the profession and its ability to serve the public interest,  perform with: integrity due care professional competence independence objectivity confidentiality, and  not be associated with any misrepresentation.

Prof. Len Brooks, Rotman School of Management, University of Toronto, 2003 Ethical Code Questions  Divulge why you were fired?  Report tax fraud?  Contact outgoing auditor, before acceptance?  Divulge info to incoming auditor?  Report incompetence?  Low-ball fees?  Serve 2 or more clients in a deal?

Prof. Len Brooks, Rotman School of Management, University of Toronto, 2003 Rules  General  Specific

Prof. Len Brooks, Rotman School of Management, University of Toronto, 2003 IFAC Code of Ethics, Nov Duty to Society, Serve the Public Interest Objectives Meet Expectations for Professionalism, Performance, Public Interest Basic Needs Credibility, Professionalism, Highest Quality Services, Confidence Fundamental Principles Integrity, Objectivity, Professional Competence and Due Care, Confidentiality, Professional Behaviour, Technical Standards

Prof. Len Brooks, Rotman School of Management, University of Toronto, 2003 IFAC Code of Ethics  Public Interest Requirement: Responsibility to the public... who rely on the objectivity and integrity of professional accountants to maintain the orderly functioning of commerce. (9, p.10)  Objectives involved: to work to the highest standards of professionalism to attain the highest levels of performance and generally to meet the public interest requirement (14, p. 11)

Prof. Len Brooks, Rotman School of Management, University of Toronto, 2003 IFAC Code of Ethics  Four basic needs must be satisfied: credibility, professionalism, highest quality services, and confidence (14, p. 11,12)  Prerequisites or Fundamental Principles to be observed to meet objectives: Integrity Objectivity Professional competence and due care Confidentiality Professional Behaviour Technical Standards (16, p. 12,13)

Prof. Len Brooks, Rotman School of Management, University of Toronto, 2003 Discipline Committee – process, appeals, success rate Sanctions leviable on professional or firm*  Caution (*)…Reprimand (*)…Review by peer (*)  Requirement to complete courses  Suspension: for a specified period for an indefinite period until specifics requirements are completed  Expulsion  Compensation for damage (*)…Fine (*)…Costs (*)  Ancillary orders for community work, etc.

Prof. Len Brooks, Rotman School of Management, University of Toronto, 2003 Motivation for Change  Macdonald Commission  Metcalf Commission  Treadway Commission  Globalization (IFAC)

Prof. Len Brooks, Rotman School of Management, University of Toronto, 2003 Shortfalls with and in Codes  Lack of understanding-significance, content  No prioritization of interests  Consultation not encouraged  Conflict resolution systems not noted  No protection for whistle-blower  Sanctions not clear

Prof. Len Brooks, Rotman School of Management, University of Toronto, 2003 International Comparison of Codes  Public Interest is paramount  Note range of wording  Best practice SMAC – dispute resolution IFAC – Disclosure to be understood in context IFAC – use strictest code if in doubt  Codes of member countries are to be harmonized to IFAC standard