Professionalism is Primary

In December 2003, Douglas R. Carmichael, Director of Professional Standards at the Public Company Accounting Oversight Board (PCAOB) was invited to speak about professionalism at the AICPA Annual National Conference in Washington, DC. In his presentation, he noted that: “Most organized professions have duties to clients and to the public. A lawyer has responsibilities to the court and the law as well as to individual clients. A doctor has responsibilities for public health as well as to individual patients. Poor management of duties to the public versus to individual clients can cause a lack of respect for a profession.”

Furthermore, “Some would say that is what happened to independent auditors. Intense pressure on the management of public companies to meet the earnings expectations of analysts led to intense pressure on auditors to help clients meet those expectations. There were economic incentives to preserve the relationship with the client. Building the client relationship had become the service ideal. Accommodation on questionable accounting practices was one result. There was a widespread erosion of professionalism and the profession lost the confidence of investors. This decline in professionalism did not happen overnight. Some would say it started decades ago.”

In concluding his presentation, he suggested:“One step that could be taken is to amend the ten basic auditing standards to add a new general standard that might be worded as follows: The auditor shall, in all matters related to the audit, act in a manner that places primary emphasis on protection of investors and the furtherance of the public interest in the issuance of informative, fair, and independent audit reports. This would make dedication to professionalism an overriding and mandatory obligation for the auditor of a public company.”

Learn more about professionalism by reviewing the presentation on Professionalism is Primary. Also, refer to previous postings about professionalism as part of this blog on Professional Judgment Matters.

Promoting high ethical standards in the profession

As the first state society established in the United States, the New York State Society of Certified Public Accountants (“NYSSCPA” or “Society”) continues to play a leading role in the development and promotion of high ethical standards within the profession. The Society’s bylaws state that the membership shall be bound by the Society’s Code; however, it is advisable for Society members who are also members of the American Institute of Certified Public Accountants (“AICPA”) to apprise themselves of the applicable laws and related regulations of governmental agencies that regulate certified public accountants in the United States.

One of the cornerstones of the profession of public accountancy is the high ethical standards of its members. Such standards are set forth in the AICPA Code of Professional Conduct (the “Code”). While high ethical standards are essential in achieving public trust and confidence, such trust can be maintained only if the public is confident that the profession can regulate itself and discipline those members who violate or ignore the Code.

The AICPA adopted a revised Code that became effective December 15, 2014. The Conceptual Framework for Members in Business and the Conceptual Framework for Members in Public Practice became effective December 15, 2015. For updates to the Code, see the Table of Contents, Appendix C - Revision History Table.

Professional Attitude

A thought-provoking discussion of professional attitudes was posted online at Clancy’s Quotes dated March 26, 2009. The discussion suggests that Professionalism is one of those words that’s rather hard to define. Consequently, people have different viewpoints on what characteristics constitute professionalism.

According to Clancy, “Professionalism consists of certain attitudes, beliefs, and behaviors sometimes known collectively as “virtue” or “good character.” Attitudes and behaviors have two things in common. First, both are produced by our beliefs. Second, we have the power to choose our attitudes and behaviors.”

Furthermore, “Becoming a professional is an attitude adjustment process that begins by understanding what it means to be a professional, creating a personal vision of professionalism, and aligning one’s values in accordance with that image. Another way to say this is “change on the outside begins on the inside.” If you were to understand professionalism, then claim it as your set of personal values, where would you start to begin your professional tune-up? A good place is with the attitude called “respect” and a person must start by respecting oneself. Professionalism also insists on respect toward others, explained best by “The Golden Rule.”

Critical success factors for tomorrow’s business leaders: Perspectives from the UK

The latest report from Chartered Accountants Worldwide has called for business to instill a culture of ‘moral courage’ from the boardroom downwards. In Critical Success Factors for Tomorrow’s Business Leaders: Perspectives from the UK, the international body states that social media and the 24-hr scrutiny of the digital age mean that there is a direct link between ethics and value creation that business needs to acknowledge.

The report follows the latest Chartered Accountants Worldwide Critical Success Factors Summit in London. The summits gather senior CEOs, CFOs and executives, together with the heads of global Chartered Accountancy bodies, to discuss key issues facing future finance professionals. The report covers issues ranging from geopolitical tensions to the need for tax simplification and also draws on research surveying chartered accountants leading UK businesses.

According to Pat Costello, Chairman of Chartered Accountants Worldwide: “The digital age means that everyone is under scrutiny, all of the time, and issues can escalate through social media like wildfire. The right decisions need to be taken in real time – it’s no longer enough to rely on the traditional hierarchies. This means we need to foster a culture where people are trained to know what the right thing to do is when a challenge presents itself. A culture of ethics certainly starts in the boardroom, but it can’t stop there.”

Revised Definition of the Professional Accountant

What is a professional accountant? Some years ago, the International Federation of Accountants (IFAC) undertook a project to develop an international definition of the term professional accountant. The purpose of the project was “To support IFAC’s members and other professional accountancy organizations in the adoption and implementation of the International Education Standards by clarifying the definition of the professional accountant.”

In November 2009, there was a confirmed need to assess the current definition of the term professional accountant. A number of issues with the current definition were identified and it was concluded that a task force should be established to 1) evaluate the current definition, and 2) determine whether an alternative could be developed for further consideration. In March 2010, IFAC formed a task force and, through a series of informal discussion papers, IFAC staff developed a paper in January 2011. The progress of the IFAC staff paper was discussed in November 2011 and, at that time, a decision was made to cease any further work on the project.

However, in June 2012 the Public Interest Oversight Board (PIOB) wrote to IFAC indicating that it believed that the project was important and should be completed. Consequently, the proposed definition was further refined in November 2012, incorporating the suggested changes and revisions made in response to the initial IFAC Staff paper, as well as revisions suggested by the Chair and technical staff of the International Accounting Education Standards Board (IAESB). The status of the project was discussed at the November 2012 meeting of chairs of IFAC’s committees and the independent standard-setting boards, and it was agreed that the project had to be advanced by the IAESB for use in its pronouncements.

In response, the IAESB directed the Framework task force to expose the definition in the Exposure Draft of the revised Framework for International Education Standards for Professional Accountants to obtain public comment. To learn more, refer to the IFAC active project webpage, Revised Definition of the Professional Accountant, and the July 2015 version of the IAESB’s revised Framework for International Education Standards for Professional Accountants and Aspiring Professional Accountants which sets out the concepts that underlie its International Education Standards.