December 2020
Covid-19 has made us all rethink ethics, says Narayanan Vaidyanathan.
It was Global Ethics Day a few weeks ago and at ACCA we actively play a part in celebrating this international day. And, as PQs, you would all be aware just how important ethics is to ACCA and how proud we are to uphold and promote the highest ethical standards. So much so, all our students have to complete the Ethics and Professional Skills module as part of the qualification.
That is also why we chose to have ethics as part of our organisation’s current quarterly theme. But this year we’re focusing on how we rethink business for a sustainable recovery globally, while exploring how the devastating effects of Covid-19 has left professional accountants facing new ethical dilemmas as business recovers.
Ethics isn’t new on the agenda for accountants, but Covid-19 certainly has created new challenges that can create the risk of compromise to ethical behaviour.
In ACCA’s most recent discussion paper, ‘Ethics in a Covid-19 world’, we examine the role of ethics during and after the pandemic. The paper reveals one in five respondents has directly or indirectly, via a work colleague, encountered a situation where as a result of Covid-19 ethics were at risk of compromise. Among those who had experienced such compromise, a quarter of issues related to the use of technology.
The ACCA Code of Ethics and Conduct is binding on all members and students, as well as any partner (or director) in an ACCA practice. It is based on the Code of the International Ethics Standards Board for Accountants (IESBA), and the fundamental principles set out are the same as those of IESBA, the latter outlines these as part of its enhanced conceptual framework.
This framework involves identifying the threat, evaluating any such threat and addressing it. Below is an outline of the various types of threats professional accountants may encounter:
• Self-interest threat: The threat a financial or other interest will inappropriately influence the professional accountant’s judgment or behaviour.
• Self-review threat: The threat a professional accountant will not appropriately evaluate the results of their previous judgment or service performed by themselves, or by another individual within the professional accountant’s firm or employing organisation, on which the accountant will rely when forming a judgment as part of providing a current service.
• Advocacy threat: The threat a professional accountant will promote a client’s or employer’s position to the point the professional accountant’s objectivity is compromised.
• Familiarity threat: The threat, owing to a long or close relationship with a client or employer, a professional accountant will be too sympathetic to their interests or too accepting of their work.
• Intimidation threat: The threat a professional accountant will be deterred from acting objectively because of actual or perceived pressures, including attempts to exercise undue influence over the professional accountant.
There are a number of examples of how the pandemic has increased the risk of ethical compromise for accountants and business alike, including:
• Time-constrained decision making: Decisions are being made too quickly, without adequate consideration of risks and their implications; or decisions are being made before adequate information is made available. If there have been staff redundancies, decisions may be made by those lacking the training and experience to do so; this issue involves both capacity and capability. So, work done is not subjected to the usual standards of evaluation. Given we are almost a year into the pandemic, there is also a risk such practices could become embedded as business-as-usual unless challenged and changed.
• Remote working: The employer must consider what is the appropriate level of tools, such as staff tracking, and balancing such controls with workers’ privacy. With software tools, organisations can track how much time an employee is online, whether they are typing or idle, their location or even obtaining visual confirmation for certain roles, using the employee’s webcam. Any such monitoring needs to consider the employee’s knowledge and consent, and to be proportionate to the objective to be achieved. There is equally an obligation on the employee to ensure that they are honest in their dealings and do not, for example, misrepresent either their working hours to their employers or their billable hours to clients.
• Assurance services: Maintaining independence is key here, particularly for small to medium-sized practices, where the relationship can stretch into friendship at a personal level, or where the firm is viewed as a trusted friend for broader advice in difficult times. Threats can manifest themselves in various ways. For example, there may be a pressure to reduce fees, take late/ instalment-based payments or other forms of implicit loans or waivers. This could translate into an intimidation threat that can affect competence and due care if the same work is to be carried out with fewer resources.
• Increase in fraud: Covid-19 has caused a rise in various forms of fraud. Cybersecurity concerns have been a significant priority and include identity theft, sale of fake goods online, hacking into networks and systems at a corporate level, etc. And this is before considering more traditional contenders that are also on the rise, such as insurance fraud. The idea of safeguards may not have envisaged specific interventions needed to tackle these risks, for example, the risk of data theft through mass homeworking by almost 100% of staff. Periodic fraud-risk assessments are needed in order to ensure actions are refreshed.
• Ethics across the supply chain: Generally, suppliers are in a position of dependence on their customers and have less power in the relationship. And where the customer is a large company with a network of smaller independent suppliers this power imbalance can be even more pronounced. Covid-19 has imposed severe cash-flow problems and smaller suppliers are even more vulnerable than larger ones. Against this backdrop, it is important to recognise the possibility of intimidation threat, for example if a professional accountant at an SME supplier is pressured to sign off on incomplete or misleading information that is needed to retain their significant customer.
What is clear from the above examples is, ethics is everyone’s responsibility – employers and employees alike, but leaders have a fundamental role to play because tone from the top really matters. Organisations look to their leaders to demonstrate authentically ethical, values-based leadership and transparency and doing so creates a cascading positive effect through the organisation.
• Narayanan Vaidyanathan is ACCA’s head of business futures.
