ICAS calls for clarification on guidance for inducements including gifts and hospitality
Ann Buttery reports on the ICAS Ethics Board’s response to the IESBA Exposure Draft - ‘Proposed Revisions to the Code Pertaining to the Offering and Accepting of Inducements’.
The ICAS Ethics Board (“the Board”) has responded to the International Ethics Standards Board for Accountants (IESBA) Exposure Draft which aims to clarify the provisions within the IESBA Code of Ethics (“the Code”) in relation to the offering and accepting of inducements, including gifts and hospitality.
The IESBA has taken the view that the term “inducement” should be neutral, and should not necessarily refer to circumstances where there is intent to improperly influence another individual’s behaviour. An explanation of the term “inducement”, and related examples, are provided in the proposed provisions. The proposed provisions also prohibit any inducements where there is intent to improperly influence behaviour.
The Board is generally supportive of the direction of IESBA’s proposals outlined in the Exposure Draft. However, the Board noted the following points which it believes IESBA should seek to address:
1. Definitions of “improper influence” and “trivial”
There is no distinction in the proposals between “improper influence” and “influence”. In practical application, there may therefore be difficulty in determining at what point “influence” crosses the line to being “improper influence”. It is recognised that this is judgemental, but it is an important judgement to make. There is therefore a need to explicitly acknowledge this judgement, and not be silent on it.
Similarly, what is “trivial”? It is all relative – something could be trivial to one person, but not to another
2. Real Life Practicalities
The proposals do not acknowledge the way people behave in real life.
For example, timing is important – if a gift arrives just before a contract is completed that could be viewed as being intended to improperly influence, and therefore inappropriate. Similarly, an inducement being offered in advance – but not being given until after the decision has been taken – can also be influential. The outcome of the influence or hospitality is important.
The Board also believes there is a need for more emphasis on being aware that “creeping influence” could be a potential issue. For example, if one member of a team receives a gift, that might be considered “trivial and inconsequential”; however, if every member of the team receives a gift, that could potentially be influential, and inappropriate.
There is therefore a need for professional accountants to have a broader perspective, and not just to look at events in isolation.
3. Offer or acceptance of an inducement that is “trivial and inconsequential” if it is made with improper intent
The Board agrees with the IESBA’s view (stated in paragraph 24 of the Explanatory Memorandum) that there should be no exceptions when it is believed that an inducement is made with improper intent, however notes that the proposed new paragraphs R250.7 and R250.8 do not explicitly state that even inducements which are “trivial and inconsequential” are not permitted if there is improper intent. For increased transparency, the Board believes that it would be beneficial to the users of the Code for these paragraphs to make an explicit statement in this regard.
4. Inducements with no intent to improperly influence behaviour – addressing a threat by simply not offering or accepting an inducement
For increased transparency, the Board believes that it would be beneficial to the users of the Code for an explicit statement to be made within paragraph 250.11 A3 to state that threats can also be addressed if the professional accountant simply does not offer or accept the inducement.
5. Safeguard – Donation to Charity
Paragraph 250.11. A3 notes the following safeguard:
“Donating the inducement to charity after receipt and appropriately disclosing the donation, for example, to those charged with governance or the individual who offered the inducement.”
The Board questions whether this example is actually a safeguard. It is questionable whether this removes the threat as the professional accountant has still accepted the inducement and could possibly choose the charity which is to benefit, which of course may have some association with a related party.
6. Pre-emptive Safeguard
Paragraph 250.11. A3 notes the following safeguard: “Registering the inducement, whether offered or accepted, in a log monitored by senior management or those charged with governance for the purposes of transparency.” The Board believes that there is also a need for a “pre-emptive” safeguard rather than just a “reactive” safeguard i.e. seeking consent from an appropriate individual prior to offering or accepting the inducement, as well as registering an inducement after it has been received.
The full ICAS response can be viewed on our Ethics Responses page.