Transcript Slide 1

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 8th 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 3rd 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 firm’s
» 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 cooperate 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
Great resources in IFAC website
» 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
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 selfprotection
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 4th directive)
Last Slide – your questions
» Barriers to
implementation of
SMO 6 in
Macedonia?
» What can
community do
overcome them?
» Your
questions......?