REAL INTEGRITY: Practical Solutions for Organizations Seeking to Promote and Encourage Integrity

Research carried out by the Institute of Chartered Accountants of England and Wales (ICAEW) notes that: “Integrity is a much-desired but little-understood feature of organizations and of the individuals they employ. It features widely in codes of conduct and lists of ethical principles. A lack of integrity is frequently cited as a cause of crises and scandals in business and public life. On the other hand few people have a clear idea of what integrity means or how it should be understood separately from ethical behaviour more generally.”

According to this research, the responsibility for promoting integrity in organizations ultimately falls to their leaders. Therefore, the aim of the research was to provide practical solutions for organizational leaders to help them achieve this. In addition, there is a clear need to involve human resources in activities, since they have access to many of the organizational levers that can make a difference. The research was conducted in three stages: a desk-based review of academic literature, a large-scale online survey of Chartered Accountants and a series of 94 semi-structured one-on-one interviews with people working in a variety of organizations.

Four major themes arise in the philosophical literature on integrity which can be synthesized into an account of integrity. People of integrity partly define themselves by, and act consistently on the basis of, principles and commitments, at least some of which are ethical in nature and which include honesty, openness and fairness. They will also stand up for their principles and thereby attempt to influence the culture of their organization or society.

Professional integrity involves commitment to the founding values of a profession and may involve attempting to influence the culture of that profession. As well as having employees with greater or lesser degrees of integrity, organizations can exhibit integrity by achieving consistency between their expressed values and what is genuinely valued within the organization by valuing ethical behaviour and by taking a wider view of the social context in which they operate.

To learn more, read the 2012 ICAEW Briefing and related publication REAL INTEGRITY: Practical Solutions for Organisations Seeking to Promote and Encourage Integrity by Jim Baxter, James Dempsey, Chris Megone and Jongseok Lee at the University of Leeds. Also, refer to other guidance on “integrity” matters.

A Definition of the Public Interest: IFAC Policy Position Paper #5

In November 2010, the International Federation of Accountants (IFAC) published a consultation paper setting out its perspective of the public interest. According to IFAC, “A hallmark of the accountancy profession is its obligation to act in the public interest. But, it is not always apparent what this means and how accountants can determine whether they are meeting this expectation. IFAC, by developing this position paper, is seeking to advance its understanding of this important issue.”

IFAC defines the “public interest” as the net benefits derived for, and procedural rigor employed on behalf of, all society in relation to any action, decision or policy. This practical definition of the public interest enables one to assess the extent to which actions, decisions or policies are made in the public interest.

IFAC considers that the “public” is inclusive of all individuals and groups because the responsibilities of the accountancy profession affect (directly or indirectly) every aspect of society: investors, consumers, suppliers, citizens and taxpayers, as well as those seeking sustainable living standards and environmental quality, for themselves and future generations. The extent to which any particular group is impacted can vary according to the action, decision or policy taken.

The paper was developed in the context of IFAC’s mission, to enable IFAC to assess the extent to which its actions and decisions are made in the public interest. IFAC is of the view that the benefits for society noted in the public interest definition may include the soundness of financial and non-financial reporting, the comparability of financial and non-financial information across borders, fiscal prudence in public expenditures, and the contributions that accountants make to corporate governance, efficient resource management and organizational performance.

For an overview of IFAC’s work, see A Definition of the Public Interest: At a Glance. Also, review the related materials: A Definition of the Public Interest: Policy Position Paper #5 and Appendices referred to in the paper which was published in June 2012. In addition, consider the guidance issued by the Institute of Chartered Accountants in England and Wales (ICAEW) in the paper Acting in the public interest: a framework for analysis.

User-friendly AICPA ethics code on horizon

Ethical decisions often need to be reached quickly, but the AICPA’s Code of Professional Conduct (ethics code) is not structured for quick and easy navigation. A proposed reformatted ethics code is meant to change that. The current ethics code started as eight rules that fit on one sheet of paper and was adopted April 9, 1917, by the American Institute of Accountants, predecessor of the American Institute of Certified Public Accountants (AICPA). Over time, the rules evolved, and in 1973 they were codified into the current Code of Professional Conduct. Almost 100 years later, the ethics code and related guidance are ripe for reorganization.

The AICPA’s Professional Ethics Executive Committee (PEEC) has restructured the Institute’s ethics standards to improve the AICPA Code of Professional Conduct (Code) so that members and others can apply the rules and reach correct conclusions more easily and intuitively. To achieve this, the PEEC restructured the Code into several parts each organized by topic, edited the Code using consistent drafting and style conventions, incorporated a conceptual framework for members in public practice and in business, revised certain Code provisions to reflect the "conceptual framework" approach (also known as the "threats and safeguard" approach) and, where applicable, referenced existing non-authoritative guidance to the relevant topic.

The Proposed Revised AICPA Code of Professional Conduct was exposed for comment on April 15, 2013. Comments on the 237-page Exposure Draft will be accepted until August 15, 2013.  The April 17, 2013 Journal of Accountancy article “User-friendly AICPA ethics code on horizon” explains the new format and the substantive changes to the existing ethics standards.

Chartered Accountants Worldwide: business leaders, decision-makers and trusted advisers

Chartered Accountants (CAs) were the founders of the accountancy profession and have led its global development. Today, they hold influential positions around the world as business leaders, decision-makers and trusted advisers. In over 180 countries, CAs have attained and maintained the top professional standard that this status demands.

CAs have been a mark of excellence across all aspects of business and financial life for over 150 years. They advise organizations, lead major companies, shape economic policy and deliver effective financial management and reporting. Talented, ethical and committed professionals have never been more highly valued. By combining unrivalled knowledge, skill and commitment, CAs enable businesses, organizations, individuals and communities to achieve their financial and strategic goals with rigour, integrity and vision.

The leading institutes of Chartered Accountants from around the world have come together to support, develop and promote the vital role that Chartered Accountants play throughout the complex global economy. They include the Institute of Chartered Accountants in England and Wales (ICAEW), the Institute of Chartered Accountants of Scotland (ICAS), the Institute of Chartered Accountants Australia (ICAA), Chartered Accountants Ireland (CAI), the New Zealand Institute of Chartered Accountants (NZICA) and the South African Institute of Chartered Accountants (SAICA).

To learn more about this initiative, browse the new website “Chartered Accountants Worldwide.” In addition, review the 87-page publication Chartered Accountants Worldwide: No ordinary business minds. For further information, contact: info@charteredaccountantsworldwide.com.

Do Auditing Standards Matter?

Understanding the economic role of auditing standards is essential for improving audit effectiveness and efficiency. In fact, auditing standards are most important when an auditor may have an incentive to under-audit. However, the conditions under which standards may, or may not, have a desirable effect on audit quality are less obvious.

 

A recently-completed research paper discusses what standards can do: (1) compensate for the lack of observability of the audit outcome by focusing on the audit process; (2) partially mitigate the information advantage possessed by the auditor as a professional expert that might motivate the auditor to under-audit; (3) counterbalance the diversity of demand across multiple stakeholders that might drive the audit to the lowest common denominator and create a market based on adverse selection; and (4) provide a benchmark that facilitates the calibration of an auditor’s legal liability in the event of a substandard audit.

 

The paper also presents a number of observations about what standards should not do: (1) discourage the use of judgment by auditors; (2) limit the potential demand for economically valuable alternative levels of assurance; (3) lead to excessive procedural routine or standardization in the conduct of the audit; and (4) be based on an enforcement agenda. In the end, standards overreach may undermine the economic value of the audit to many stakeholders and lead to fee pressure for audit firms.

 

Hopefully, these insights can inform future debates about the level and types of standards that are appropriate for the auditing profession. For more information, read the article “Do Auditing Standards Matter?” by W. Robert Knechel, PhD, University of Florida. This manuscript has been accepted for publication in an American Accounting Association (AAA) journal. The author has posted this preliminary version of the manuscript in the interest of making the information available for distribution and citation on a timely basis.

Ethics of Relationships between Accounting Academics and External Sponsors

They challenge and shape the accounting world, and support the standard-setters and regulators. For leading academic accountants, research informs not only accounting and the financial world in general, but also their work with aspiring accountants. The very best in academe are those scholars who challenge their students as well as established thought while shaping novel and inventive ways of looking at the accounting world. The need for rigorous research to support the decisions that have to be made by standard-setters and regulators is only going to increase (see the article “Inquiring minds” by Robert Colapinto in the April 2013 edition of CAmagazine online).

 A variety of relationships can develop between accounting academics and external sponsors that raise issues of ethical propriety. External donors may seek to influence academic decisions by applying pressure on recipients to gain favored treatment. These types of situations are on the rise because of increased commercialization of universities. A recently-completed study examined relationships between accounting academics and external sponsors that challenge academic independence because of conflicts of interest when donors seek to impose conditions on financial support.

 

The authors solicit the opinions of academic accountants about how likely they are to go along with the conditions. They link these activities to the following ethical issues: fair-mindedness, objectivity and integrity. They conclude that the more experienced accounting academics (i.e., full professors, current chairs, holders of endowed chairs and designated faculty fellows) are less likely to engage in ethically questionable relationships with external sponsors than academics who are less experienced.

 

The results are driven primarily by two cases: allowing a Big Four CPA firm to interview students before other firms as a condition of continued recruiting and allowing a firm to decide on the recipient of a named faculty fellowship. Read more in the forthcoming research article “Ethics of Relationships between Accounting Academics and External Sponsors,” by Steven M. Mintz, Li Dang and Arline Savage in Issues in Accounting Education (2013) published by the American Accounting Association.