“In their own words”…Context matters – Professional practice
In the following extract from the ICAS research publication “Speak up? Listen up? Whistleblow? In their own words – Insights into the ethical dilemmas of ICAS members” we hear from ICAS members about their real-life experiences of ethical challenges, “In their own words”.
"My view has always been at the top, to say, if we have got a problem get it out on the table now because it is easier to deal with now than it may be in fifteen years’ time when these things have got long tails. So I think giving people that opportunity that you know you are not going to get fired if you put something on the table… you want to encourage people that if there is a problem get it on the table early because there are issues all over the place and you want people to feel they can air these. And it is a lot easier for an organisation to deal with it now than at a later date." (Extract from interview with Finlay)
6.1 Professional practice
86% of current ICAS students undertake their training in professional practice firms and 25% of current members work in professional practice (FRC, 2018). This sector therefore has a strong influence on the majority of ICAS members via their training and a continuing influence on a quarter of qualified members. This section draws on the interviews conducted with members currently working in practice and those who have moved into other sectors who reflected on the influence on their career and ethical mind-set of their time spent in professional practice. In addition, five interviews were conducted with senior staff (partner or director level) at five of the largest professional accountancy firms in order to learn about the ways in which the ethics environment is developing, especially in the light of the developments set out in Section 2.1.
The views of ethics partners and directors
All five of the partners and directors who were interviewed reported recent developments in their organisations. Details varied from firm to firm but included an increase in staff resource in the area of ethics, the introduction of external helplines which staff could use to report issues, the introduction of champions to help with specific areas such as mental health, diversity and inclusion, and a greater focus on discussing potential and actual conflicts of interest. All interviewees referred to recent events such as highly publicised audit failures and the reviews of the audit market, and felt that this context had led to the firms reflecting on a variety of procedures and processes. This had involved a debate, expressed by Conner as “can we/should we?”, namely that discussion had moved from whether something was permissible to whether, if permissible, the firm should be getting involved. Arthur explained that:
"If you go back relatively recently to a conflict being seen pretty narrowly in the context of different organisations working in relation to the same subject matter, which is where all the professional bodies sort of start from in terms of what might be a conflict, we are so far away from that now in terms of the consideration of what might be a conflict."
These new developments supplemented the various forms of training that the firms rolled out for ethics and compliance matters, annual staff surveys, counselling and mentoring, codes of conduct and codes of values that the firms have had for some time. Conner also said that there is now more awareness of issues that would not have been considered in the past and that this can extend into all areas of the firm. For example, if the culture was for everyone to go to a pub after work on a Friday, they are now much more sensitive to the fact that not all staff will feel they want to do that so there is a much greater emphasis on saying “well, if we want the whole team then maybe we should find another way of socialising other than going down to the pub”. So there is more “consideration” and “thoughtfulness” in all areas of work.
All interviewees stressed the importance of creating a supportive culture. The firms all tend to have a pyramid structure with a lot of relatively young staff and fewer at more senior levels. In such a structure, Conner sees it as vital that these younger or less experienced members of staff feel able to speak up:
"What they don’t always appreciate is that in these sorts of situations, unless you nip it in the bud, it rarely gets better. So it will just get worse and then it will create an even bigger problem further down the line but they need to have the confidence to be able to speak up…You know you can say these things but it doesn’t mean they believe it and I think that it’s really important that we get people to believe that it’s okay to do this. How one does that? I suppose you lead by example. They need to be able to see that even people who they consider to be more senior, more experienced, do make mistakes because you’re forever learning in a professional environment."
They all acknowledged that in large organisations such as theirs, things will happen from time to time but they all felt that their cultures encouraged people to speak up. Charles referred to the “culture of consulting” that meant that people were encouraged to consult, discuss, take advice so that people “feel trusted and supported by the firm”. Conner’s wording was similar, saying the firm’s culture is to “encourage people to consult and no question is a dumb question”. In Tom’s words “we would encourage people to try to resolve grievances or problems or issues or concerns at a local level” so a lot of effort is put into “trying to create a culture and environment that supports that so that people don’t feel intimidated”. Nonetheless, Tom was clear that some matters could not be addressed in this way and would need to be escalated to higher levels of staff, and sometimes to human resources via the grievance procedure. Finally there were other issues that would come via a more formalised ethics route.
Each of the firms is also required under the Audit Firm Governance Code issued by the Financial Reporting Council in 2010 and revised in 2016 (FRC, 2016) to have governance structures, in which at least three independent non-executive members should be in a majority to oversee public interest matters, with an annual transparency report being produced. The Code includes a whistleblowing principle stating that:
A firm should establish and apply confidential whistleblowing policies and procedures across the firm which enable people to report, without fear, concerns about the firm’s commitment to quality work and professional judgement and values in a way that properly takes the public interest into consideration. The independent non-executives should be satisfied that there is an effective whistleblowing process in place (FRC, 2016, paragraph D4).
A wide variety of issues were being reported, including expenses issues, behaviours, billing issues and bullying. Behaviours such as touching inappropriately and cases where “drink and sexual behaviours seem to go hand in hand”, according to Charles, are being reported. Billing issues generally involved costs of staff being moved from one client to another but all of the interviewees who raised this were clear that in no cases had clients been billed additional amounts. Rather the issues related to internal allocations. Bullying was also raised and sometimes people who were being complained about did not recognise this. In one instance, Kate said that one partner she had questioned was very surprised by the bullying complaint because, as he saw it, he was “very proud that he’s a blunt man, he says it like it is”. Tom commented that, in his experience, “often at the heart of it is miscommunication and misunderstanding” so sometimes part of his role becomes to “defuse things”. He therefore feels that there is a constant need to equip people with strong communication skills. Charles had found that:
"Some you actually may discover when you really dig into it that the individual who has accusations against probably has some complications in perhaps health or situations in their personal life and may actually need some support. But that has not stopped us if we have concluded that there has been inappropriate behaviour."
In these circumstances, some interviewees referred to people being asked to leave the organisation but Charles said “we don’t ask someone to leave, we sack them”.
Prevalence of issues being reported varied. Kate said that recent initiatives had resulted in a large increase in issues being reported in the past year and estimated that around half were human resource or behavioural in nature. She said that, statistically, it was more likely that partners would have issues raised against them than other levels:
"I don’t think that’s because partners are particularly bad. I think it’s because partners are in a position where they can influence a lot of people and that’s the way it goes and where organisations are triangle shaped and I think if a junior person is badly behaving it’s probably going to be dealt with by management."
It was difficult to gauge whether this meant that there were more incidences but she felt that a combination of better reporting and a greater awareness of issues following wider media attention such as #MeToo had contributed to this increase. Of better recording, she said that this did not mean that things were deliberately unrecorded in the past but:
"Before, I think we were less likely to record things. I don’t mean that in a bad way but I just mean if somebody were to have a conversation with (name deleted) and it was kind of resolved without much happening that wouldn’t really be recorded whereas I think it’s quite important to capture these things."
Also, in the past, Kate said that issues were raised via multiple channels and that is better co-ordinated now. Likewise, Arthur said that his firm was getting a higher number of reports of behavioural issues. He thinks this is because the firm has:
"Focused very hard on the fact that behaviour that is inconsistent with our values is unacceptable and therefore encouraged people to speak up for this. And we continue to remind people of that and needless to say after you put out the reminder that you tend to get a little blip but they are small numbers. And this is the challenge and so one has to be careful when looking at trends in that kind of thing."
Not all firms had seen an increase in activity, however. The experience at Tom’s firm was that around three or four issues a year were reported through ethics procedures and around the same number were treated by human resources as grievance matters.
As regards investigation, in contrast with the difficulties associated with investigations at some types of organisation, in Tom’s view, the way that audit firms operate means that there are usually other people who can provide evidence when matters are being investigated because:
"People work with lots of different teams so it is quite rare to have one individual working solely for another individual without any other people being involved. And so normally as part of the investigation there are others who you can kind of get a view from, as to whether they have worked with this person and what is their experience and what sort of issues have come up. And also we work in open plan so it is quite hard to do something without someone else being around and spotting it. It is not to say that it wouldn’t happen either late in the evening or with people in a meeting room or something like that but it does mean there’s usually other third parties that can be interviewed to get their perspective on it, to see if they know about a particular issue or incident or allegation."
An area where differences existed was in the level of publicity given to the outcome of ethics investigations. Kate would like greater visibility. In her view, the people closest to a complaint would often, though not always, know the outcome indirectly, especially if someone had been asked to leave the firm but she was clear that her firm “need to do more there”:
"My concern is that we talk about ethics and we produce this, actually our last training was really pretty good, but because we don’t talk about specific cases or talk about anything that actually happens to the wider population, I just think that’s where we are missing a trick."
At Charles’ firm, there is a little more reporting nowadays but he did caution that full disclosure can be difficult because of some sensitive areas that may become legal matters.
Finally, another issue that often came up in annual surveys was work pressures. Charles attributed this to a mix of internal and external circumstances as “partly that is the firms but partly it is because the stock exchange deadlines are very hard for reporting”. Other factors included the increasing use of technology, including email and the expectation of quick responses. In Charles’ view, “managing that resourcing equation is one of the biggest challenges we have got as an organisation”. Arthur also had similar concerns as he suspected that there was “fairly extensive non-charging of hours worked” which “is poor business practice, wrong for all sorts of reasons” but his firm had found that there was much less reporting of this through speak up mechanisms than other issues such as “sexism, bullying, racism, all things like that that people would seem much more comfortable at raising and expressing”.
Working at the Big Four and other large firms
Interviewees frequently looked back on their time in professional practice and reflected on the high ethical standards that they felt had characterised that time in their careers. Leo described his training firm as “honest as the day is long” while Jonathan recalled:
"The way it was hammered into myself and the other apprentices that were going through it with me, it is either right or wrong and there are no fudges. And if you are a CA you do it right."
Calum said that his large firm was “regulated robustly. Corporate governance was second nature. It was drilled into you”. He felt that these firms were “money-making machines but you didn’t get into muddy waters”. Joshua described his experiences of professional practice as “very collaborative and collegial” but this is not something that had particularly struck him at the time, as he said “you don’t realise it until you step away”. Ethan’s comments were typical. He felt that an advantage of professional practice was that “there were always people you could speak to, be it partners or be it a colleague” so “you never had to feel isolated”. He contrasted this with the additional “pressure to hit goals” in industry and the bonus culture where, in his case, his maximum bonus could be up to 60% of his salary. Likewise, Nathan recalled that, as a more junior auditor, issues could be “passed on up the chain” so that they were dealt with by someone more senior so he “didn’t have to lose too much sleep over what they were going to do”, whereas, now working on his own account, he was the person who had to resolve issues. He also referred to the existence of multiple teams so that it was possible to approach people that you did not regularly work for, if that was better “because there were always enough people around you and enough different routes you could take”.
Those still working within professional practice at large firms, or who had spent their whole career there, felt that the larger accountancy firms have well-developed policies and procedures relating to ethics, including regular training in ethics, conflicts of interest and independence issues. Harry, who had spent most of his career at Big Four and other major accountancy firms, felt that ethical reputation was part of the “brand – and anything that taints or damages the brand is going to be expensive”. Bruce, a retired partner, also regarded ethics as fundamental to reputation, saying that if something went wrong, “the commercial side of a claim is one thing but the reputational side is much harder to fix”. He, however, stressed that it could not be assumed that, just because there were procedures in place, that they would be effective. He stressed the importance of partners keeping in touch with their audit teams:
"I remember one, a quite senior audit partner from London said to us that his experience was if there was ever a problem with a client when you look back somebody in the audit team knew about it at the time. So, go and talk to your audit teams, don’t just presume people will report up to you, which is a passive way. You have to maybe be a bit more active and if you chat to folk all sorts of things come out."
People who had experience of working with more than one of the largest accountancy firms felt that there was very little difference between them in terms of culture. Sebastian commented that both of the firms he had worked for were well-organised, with a lot of team work and the opportunity to build up good relationships. Ethics awareness was visibly promoted through regular training on ethical issues and independence from induction onwards so ethical issues “are being flagged all the time”. Likewise, Yvonne had experience of two large accountancy firms and said there was a lot of training in both around “ethical dilemmas, money laundering, all these types of things. And it is not a tick box exercise. It is quite involved and it is tested, there is an exam at the end of it”. Alongside this, the firms have whistleblowing hotlines and in-house investigation teams for ethical breaches. Both Sebastian and Yvonne commented that the nature of the firms is that nobody is isolated; there are always a lot of people to talk to if someone has an issue.
What Yvonne had noticed was a change in culture and emphasis over the years. She said, “when I started, eighteen years ago, I would say it was very hierarchical and you would query something but you were very much reminded that you were the junior on a team”. Nowadays, she continued that, “it is more collaborative regardless of your position. If you have a question, that question is answered”. As she put it “‘if in doubt, shout’, is pretty much the culture”.
Sebastian mentioned a range of specific issues that were also becoming more visible, including expenses and billing. Regarding expenses, he said that his firm had strict policies and that a member of his team had been dismissed over expenses irregularities, so such matters were being taken seriously. He also said that there had been instances where time worked on one client might be switched to another client job to make some jobs look more profitable. He stressed that he had never seen a case where a client’s bill had been altered, so the issue he raised related to internal adjustments not to actual erroneous billing of clients but nonetheless he felt uncomfortable with the practice and had raised it in one particular case.
The large firms therefore are regarded as having a range of developed ethics procedures in place. Yvonne was careful to stress, however, that “there is always a danger of working for the Big 4 and saying we do things better – it is only a function of being bigger that we have more resources”. In smaller firms, there were still elements of ethics policies and procedures but these did appear to be less developed than in the larger firms, as discussed in the next section.
These examples show that, despite well-publicised criticisms at the present time of the largest accountancy firms, many of the interviewees regarded them as fairly ethical places. Ben’s recollections were different. An early incident started his lifelong interest in professional ethics – “the whole thing started with an ethical challenge at (accountancy firm name deleted)”. Shortly after qualifying with a small firm of accountants, he joined the management consulting section of one of the now-Big 4 firms and had found the fee and income-generation practices to be distasteful. He had been working with a travel company that was in distress and went along every Monday to help review the cash flow situation. Despite these efforts, the firm did collapse:
"I was summoned by the senior partner in charge in Scotland … and asked why I hadn’t sold more services to [client name deleted] and my argument was that I couldn’t do it because they were on a very tight budget, you know the cash flow just couldn’t pay for it, and he absolutely blew up and almost shouted at me that I had failed to take advantage of the situation."
The partner then raised another issue about why the fees he was charging another client were so low (he was charging around £250 when the going rate at the firm was more like £500-600 at the time):
"So I got blown up for that one as well, at which point I came to the conclusion that (accountancy firm name deleted) and me were parting company, and I did. So it was an ethical decision based on professional practices of accountants and the way they behaved towards their clients. I think some of that stuff still exists… and has expanded. This is why I think the accountants are under scrutiny."
Working at mid-tier firms and firms with several partners
The large firms have dedicated ethics partners but in a mid-tier firm with several offices, Jim said:
"We actually have an Ethics Partner as well. And, I think it’s actually me. But, it might not be. It might have gone to one of my partners in my (name redacted) office. But, we do have that."
Lucas works in an independent firm with several partners. Ethics structures are becoming more formalised. He describes regular conversations about conflicts of interest and said “actually we are contemplating resigning from an audit at the moment because we think there is an over-reliance on non-audit fees”. There are also monthly management meetings where issues can be raised and, in addition to that, “the partners’ doors are open and they are approachable”. He felt that “challenging conversations” were inevitable but that “if you can communicate early enough, the challenging conversations are a lot easier”. He had seen a step-change in the formalisation of roles so there was now an ethics partner as well as a money laundering officer and an audit compliance principal. As in larger accountancy firms, ethics tended to land more with more senior staff:
"The ethics probably hit the more senior staff more than the junior staff because they can pass it to a partner or audit compliance principal to actually ultimately make the decision (with the exception of money laundering regulations). That is not them washing their hands of it but they have passed the responsibility back up the line a wee bit."
There is also more awareness and visibility around the need to flag ethical issues, the main ones being around conflicts, independence and tax matters. However, an issue that he stressed that related particularly to his size of firm was that clients who tend to be owner-managed businesses “see you as their one stop adviser”. They therefore want somebody to be able to deal with their audit, tax, potential acquisitions and similar issues and do not understand why their accountant, who they view as a general business adviser, might not feel able to take on all such work.
Working as a sole practitioner and at small practices with two or three partners
Leo is a partner in a small practice and finds that:
"Working in partnership with others is quite supportive in these situations. If you have a bit of a dilemma you’ve always got somebody to talk to who’s next door to you as it were and whilst we’ve had quite a number of occasions, where we’ve had to stop and think are we doing the right thing or not, I think we’ve arrived at the proper solution to these things."
Nathan had set up his own practice with another CA. Being in partnership together was also advantageous for them as they could consult each other but this limited network contrasted with the situation that Nathan had previously experienced at a Big Four firm where “you speak to a partner and they will have had x years of experience in situations or will have discussed with other partners about what can be done”. In the absence of this network, Nathan felt that ICAS has a key role to play and he had in fact consulted ICAS on a number of occasions and “they have been helpful at providing clarity”. Nathan also missed the CPD opportunities within his previous large firm:
"You didn’t have to put any thought into what your training would be like or what your ongoing CPD was going to be because they took care of that because they were identifying at a much wider level the key issues that they wanted to make sure that staff were aware of. Whereas now we have to take it upon ourselves to look at things like, well the big one at the moment, the GDPR."
In small practices, there are still regulatory requirements, for example Nathan stated that:
"We do all the sort of mandatory things like money laundering compliance and making sure that everyone is aware of the anti-money laundering process. They all know that I am the reporting officer so that any suspicions they might have on that front come to me first as opposed to going to a client."
However, he stressed that “they also know that myself and (other partner name deleted) are there to answer any questions they might have” so he felt that the key aspect was to foster an open culture, often using “messenger tools and things like that to try and do that in a less formal way so it is quick and easy”.
Sole practitioners are, by definition, in a more isolated position as Jonathan found. In these circumstances, support has to be sought from other sources such as other ICAS members working nearby and from ICAS. Leo recounted a situation before he entered into partnership where he had encountered a dilemma and approached ICAS. He had not found this contact useful and felt quite isolated, saying “I felt on my own actually” although he did later speak with a friend, another chartered accountant, saying that “it didn’t really solve my problem for me” but that “even if it doesn’t solve the problem, at least it often reduces it a little bit”.
Jack raised a different aspect relating to being a sole practitioner. In his view, even greater care needs to be taken in selecting clients in the first place so that the issue is not solely “know your client” but also “do I want to work for them?”. He then described a situation where he had felt uncomfortable, saying “there was nothing to whistleblow on but I just decided to shake hands and walk away” rather than advise on a particular contract.
In a series of extracts from the research hear from ICAS members about the real-life situations they have faced - “In their own words”.
Hear more about the key findings from the author of the research Catriona Paisey, Professor of Accounting, University of Glasgow