1. Ethics Seminar at CICPA
Anton Colella, Chief Executive, The Institute of Chartered Accountants of Scotland (ICAS)
Douglas Nisbet, President, The Institute of Chartered Accountants of Scotland (ICAS)
2 February 2010

2. Ethics Seminar at CICPA - Overview
Introduction – Ethics for Professional Accountants
Case Studies
Final Discussion and Closing Comments

3. About ICAS
We have the first Royal Charter given to a UK accountancy body in 1854
High profile members in the fields of accountancy and business
Approximately 18,000 members
Excellent reputation worldwide

4. 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).

5. We all want to do the right thing, don’t we?
Ethics is a global issue
All accountants are facing similar decisions
IFAC code applies globally and is at the heart of ethics
Local factors come into play in application of ethics

6. Why Ethics is important
ICAS Public Interest Charter
Ethics and integrity
Ethics underlies judgement in a principles based accounting regime

7. Potential Ethical dilemmas for Accountants
Monthly financial targets not likely to be met and/or possible breach of bank covenants.
Possible manipulation of figures in financial accounts.
In the UK bonuses/share options for employees may depend on certain level of profits being reached

8. Potential Ethical dilemmas for Accountants
Pressure from client/bank if an audit report needs to be signed today and there is insufficient information to know whether accounts show a true and fair view
Whether to make people aware of conflicts of interest in business dealings.

9. 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 various accounting scandals worldwide can testify.

10. 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 India’s reputation.

11. Satyam Computer Services
“It was like riding a tiger, not knowing when to get off without being eaten.” Mr B Ramalinga Raju, Chairman and Chief Executive

12. Case study You are a financial controller in a medium sized company.
The financial director asks you to follow an accounting policy for certain types of transactions which is not in accordance with the accounting requirements.
In year 1 these transactions are immaterial.
What do you do?

13. Case study continued Assume that you did as you were told.
In year 2 these transactions are now material – what do you now do - have you willingly approved the accounting treatment – can you reverse the decision?

14. Case study continued
‘Creeping up’ effect – small breaches can lead to greater breaches.
Auditor has to be careful – item could be immaterial to begin with.
Pay attention to the possible longer-term consequences of current business decisions.

15. Once you’ve started it’s like a runaway train…

16. Identifying an ethical dilemma
This is the first challenge.
If you can’t identify the issue then how can you do anything about it?
Need for ethics training - students and qualified accountants.

17. Ethical training at ICAS
ICAS students do a 2 day course as part of 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 CICPA members?

18. 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 employer’s Code of Conduct.

19. Once an ethical dilemma is identified what should you do?
Discuss with trusted colleagues or friends in the profession (confidentiality issues?)
Does your employer have an ethics helpline?
Discuss with the CICPA?

20. Once an ethical dilemma is identified what should you do?
Ultimately, you must decide your course of action.
Professional responsibility.
How would it look if my actions were reported on the front page of the newspaper?

21. IFAC Code of Ethics
The Code is principles-based but is under pressure from some countries to become more rules based.
“Shall” instead of “Should”.
Four parts to the Code

22. IFAC Code of Ethics – key principles
Integrity
Objectivity
Professional Competence and Due Care
Professional Behaviour
Confidentiality

23. IFAC Code of Ethics – key principles
Follow the fundamental principles
Full guidance where applicable

24. IFAC Code of Ethics
Having a Code of Ethics is merely a starting point - it is the application of it that matters.
Enron had a fantastic ethical code.
However, they never embedded the proper message.
Tone at the top is crucial.

25. IFAC Code of Ethics
At present there is no mandatory requirement for qualified members to undertake training in ethics.
This is kept under review.
ICAS has moved to an output based system of Continuing Professional Development (CPD).

26. UK Auditing Practices Board (APB): Ethical Standards for Auditors
These apply in the UK and cover auditors only.
They are based on the IFAC code but go further
There are five standards

27. 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?

28. ICAS Research Taking Ethics to Heart (2006)
(research based recommendations on embedding ethics 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 in business)
Available from ICAS website

29. ICAS Ethical Case Studies
Objective is to bring ethical problems to life.
Encourage debate – not all ethical issues are black and white.

30. 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 in Business.

31. ICAS ethical Case Study 1
“To be or not to be a non-executive director”
Discussion and questions

32. ICAS Ethical Case Study 2
“Double your money”
Discussion and questions

33. Closing remarks Courage is the additional key principle/value.
Isolation - can be a problem for members in business. Less of a problem for members in larger accountancy practices.
However, to do the right thing applies to all accountants.
Seek internal and external support when required.

34. Closing remarks
A quote from an old article on ethical business reads, “making money by being immoral is short sighted because you’ll soon be found out. Making money by being moral will mean you’ll succeed long term”.
We have been living in an age of short sightedness, we haven’t been looking far enough ahead to make the right decisions.

35. Closing remarks
Only by being ethical can be we make the “right” decisions.

36. Thank you for inviting us to CICPA to give this presentation and for listening