October 26, 2020

New Ethics Rules for Accountants Not Impressing Everyone

Can you ever have too many ethics rules? I don't know if there's a good way to answer that question, but the International Ethics Standards Board for Accountants has been working real hard on some new ones that will roll out this week:

The International Ethics Standards Board for Accountants plans to release new standards this week aimed at resolving potential conflicts of interest for internal and external accountants and auditors, who can feel bound by strict client confidentiality rules, even when they uncover wrongdoing.

More than six years in the making, the new standards come amid a spate of high-profile corporate missteps—from Volkswagen AG ’s emissions-cheating scandal to allegedly inadequate money-laundering controls at financial firms like HSBC Holdings PLC and U.S. Bancorp.

“The standards clarify that professional accountants must be active and not turn a blind eye to noncompliance,” said Stavros Thomadakis, chairman of the IESBA, whose rules are used in over 100 jurisdictions. “It’s trying to bring about early, early detection, if you will, but also early action by management or authorities.”

Okay, I think I understand this. Accountants and auditors need to be the pre-whistleblower whistleblower, right? Clairvoyant, if you will.

As exciting as that sounds, not everyone is as enthusiastic as Mr. Thomadakis:

Some experts have doubts about the usefulness of the guidelines, at least in the U.S., where the Securities and Exchange Commission already takes accountants to task for failing to raise a red flag when they learn of regulatory infractions.

“If the SEC prosecutes, and it turns out the auditor knew, the SEC has the power to go after the accountant or auditor,” said Shivaram Rajgopal, a professor of accounting and auditing at Columbia Business School. “Maybe it might help in other countries” with less rigorous standards, he said.

Others wonder whether more ethics policies are necessary. “All of the professional accounting firms have codes of ethics,” said Cynthia Clark, director of the Harold Geneen Institute of Corporate Governance at Bentley University. For example, “if I violated the ethics code at KPMG, I would likely be fired,” she said.

I think it's cute when an expert points to a Big 4 firm as a foremost example of business practices. It's like a politician endorsing the local mob boss as "a pillar of the business community." It's also quaint when US-based experts dismiss outsiders' efforts to offer guidance on anything. "This is the United States! Obviously we know what we're doing."

[WSJ

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