ICAI - GUJARAT ETHICAL DILEMMA for CAs` Date 04.08.2018 By CA. V. VENKATA SIVAKUMAR, B.Sc.(Chemistry), FCA, LLM, (Constitutional Law) Cert. CCA, DISA, FAFD, (ICAI) Resolution Professional (IBBI) and Insolvency Professional, Chennai
Introduction – Ethics for Professional • Accountants Case Studies • Final Discussion and Closing Comments • 2
• ICAI is enacted in 1949 much before the adoption of our Indian constitution • High profile members in the fields of accountancy and business • Approximately 3 Lakhs members, the second largest accounting body with Excellent reputation worldwide 3
Ethics is concerned with how an attitude, action • or decision is determined as ‘right or wrong or good or evil’ (Donaldson, 1988). 4
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 • 5
ICAI is a statutory body dependence on public • confidence which is driven by institutional and members Ethics and integrity Ethics underlies judgement in a principles based • accounting regime 6
THE PROFESSIONALACCOUNTANT IN PUBLIC PRACTICE All members (and registered students) of ICAI bodies have a responsibility to behave professionally and ethically at all times. In addition, a professional accountant who is a principal or a senior employee within a practice will have a particularly important role to play in creating, promoting and maintaining an ethical culture within the practice and, possibly, among the clients of the practice. You may be approached by others within the practice who wish to report unethical behavior and, as a senior figure, you will have an impact on its ethical tone Cont…
If you are made aware of unethical practices among clients, it may be more difficult to determine your responsibilities. But an accountant in public practice carries a great deal of responsibility, and may be subject to scrutiny by the staff of the practice, clients and other members of the local community. In particular, a wide range of clients will expect a high level of professional competence from their accountant, and the trust that they place in their accountant requires the accountant ’ s integrity to be unquestionable. Cont…
A professional accountant in public practice has a responsibility to further the legitimate aims of his or her clients. The ethical codes of the CCAB bodies do not seek to hinder a professional accountant in public practice from properly fulfilling that responsibility, but address circumstances in which compliance with the fundamental principles may be compromised. Cont…
An accountant in public practice will want to act in the best interests of his or her clients. However, he or she also has a responsibility to act in the public interest, which will require objectivity to be exercised at all times (not only when providing assurances to third parties). The duties of the accountant in public practice who faces an ethical dilemma cannot be easily reconciled. On the one hand, it is good business practice to work closely with your clients; on the other hand, you will sometimes be expected to challenge their decisions, and even distance yourself from them.
RESOLVING ETHICAL DILEMMAS
These case studies are compatible with the ethical codes of the CCAB member bodies, which are derived from the Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants (IESBA) The case studies illustrate the application of the ‘ conceptual framework ’ approach to resolving ethical dilemmas. This approach focuses on safeguarding the fundamental principles of: • Integrity, • Objectivity, • Professional competence and due care, • Confidentiality, and • Professional behavior.
In order to do so, it is important to be alert to situations that may threaten these fundamental principles. Identified threats need to be evaluated and managed, to ensure that they are either eliminated or reduced to an acceptable level. Threats may arise as a result of any of the following: • Self-interest: the threat that a financial or other interest will inappropriately influence your judgment or behavior • self-review: the threat that you will not properly evaluate the results of a previous judgment made or service performed by you (or someone else within your practice) when forming a judgment as part of providing a current service • advocacy: the threat that you will promote a position (usually your client ’ s) to the point that your objectivity is compromised • familiarity: the threat that, due to a long or close relationship with someone, you will be too sympathetic to that person ’ s interests, or too accepting of their work • intimidation: the threat that you will be deterred from acting objectively because of actual or perceived pressures, including attempts to exercise undue influence over you.
When resolving an ethical conflict, consider carefully whether other parties could or should be involved in discussions and, if appropriate, how those parties should be approached. As a professional accountant in public practice, you may find yourself under significant time pressure as you try to satisfy the competing demands of your clients. You could be expected to spend less time discharging your duties than you feel is actually required, and this could, in turn, give rise to a risk that any ethical issues that arise will not be adequately considered.
If you are facing, or think you might be facing, an ethical dilemma, you may wish to seek advice from your professional body or obtain independent legal advice. Consider whether your actions in response to the situation and the advice obtained are sufficiently well documented, either by way of minutes or your own records. In many situations, the perception of a reasonable and informed third party will be relevant to the resolution of the dilemma, and you might be required to evidence the steps you took to resolve the issue
KEY FINDINGS
TABLE 1: COMMON ETHICAL ISSUES
TABLE 2: COMMON CAUSES OF ETHICAL ISSUES
TABLE 3: COMMON RESPONSES TO ETHICAL ISSUES
ETHICS CHECKLIST
THE COUNCIL Has the Council set and adhered to corporate values that create the expectation that all business be conducted legally and ethically? Has the Council promoted risk awareness and conveyed the expectation that it does not support excessive risk-taking? Has the Council ensured that appropriate steps are taken to communicate corporate values, professional standards or codes of conduct together with supporting policies? Has the Council outlined the consequences of unacceptable behavior? Does the organization have a code of conduct or a comparable policy that defines acceptable and unacceptable behaviors? Does the code of conduct make clear that employees are expected to conduct themselves ethically in addition to complying with laws, regulations and company policies?
ETHICAL ISSUES ARISING Review ethical issues that came to the attention of the Council during the year including conflicts of interest; gifts register; and procurement issues. Review how the issues were dealt with. Was the action adequate? If not, what can be done to redress this? Review ethical issues arising from the most recent review and/or update of the risk register including reputational issues; supplier code of conduct; donations policy; corporate social responsibility policy; ethical procurement code; and anti-fraud policy. Review how the issues were dealt with. Was the action adequate? If not, what can be done to redress this?
WHISTLEBLOWERS LEGISLATION A secure channel should be available to employees to report ethical issues that concern suspected violations of company codes of practice. Employees should be encouraged and able to communicate confidentially and without the risk of reprisal, legitimate concerns about illegal, unethical or questionable practices. The organization's corporate values should recognize the importance of timely, frank discussion and the escalation of problems. There should be direct or indirect communication to the Council (e.g. through an independent audit process). Does the Council determine how, and by whom, legitimate concerns shall be investigated and addressed by an objective independent internal or external body, senior management and/or the Council itself?
COUNCIL MEMBERS ’ RESPONSIBILITIES Has the Council members ’ handbook been issued to all Council members and do they understand it? Has it been discussed at a Council meeting? Does the handbook detail the new codification of directors ’ duties in compliance with Companies Act 2014? Has the Office of the Director of Corporate Enforcement (ODCE) booklet, Principle Duties and Powers of Company Directors Under the Companies Act (2014), been issued? Has the compliance and ethics programme been integrated into standard internal audit procedures?
DISCLOSURE TO STAKEHOLDERS Ensure that the organization's code of ethics and ethics review are detailed and explained in the governance statement of the annual report. Penelope Kenny FCA is Director of Arts Governance and author of Corporate Governance for the Irish Arts Sector.
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