Sustainability and the ICAS Code of Ethics: Professional appointments
Ann Buttery, Head of Ethics, ICAS Policy Leadership, highlights the sixth in a series of extracts from ICAS’ new guidance paper ‘Guidance to the ICAS Code of Ethics: Sustainability’ in relation to professional appointments.
Sustainability, the CA and The Power of One
Society is changing. There is an ever-growing emphasis on sustainability, and Environmental, Social and Governance (ESG), at government and regulatory level as well as increased societal expectations for organisations to behave responsibly.
Whilst the “E” is clearly important, sustainability is not just about climate change - the importance of societal matters (the “S”) as well as governance and ethical corporate cultures (the “G”) are of equal significance. Organisations need to be thinking about the impact of sustainability/ESG on their organisation and the impact of their organisation on the environment and society.
The accountancy profession has a responsibility to act in the public interest. Ethics is the conscience of organisations, it is at the core of driving behaviours, and is the key to long-term thinking and trust. The golden thread of ethics and The Power of One weaves through sustainability and ESG. There is a need for all CAs to be aware that sustainability/ESG is not a niche topic that they can ignore. Every CA has their part to play in their own sphere of work around ethics and sustainability.
CAs must always ensure their obligations to the five fundamental ethics principles enshrined within the Code of Ethics (the “Code”) are met: integrity; objectivity; professional competence and due care; confidentiality; and professional behaviour. The new guidance to the Code seeks to assist CAs by signposting a number of areas of the Code where provisions could relate to sustainability related matters.
This extract is the sixth of a series from the guidance and highlights how the provisions within the Code in relation to professional appointments could apply to sustainability. Links to the other extracts are provided below.
Section 320 of the Code discusses “Professional appointments”. Sustainability and ESG related matters need to be considered during this process to ensure compliance with the fundamental ethics principles of integrity, professional behaviour, and professional competence and due care.
Integrity and professional behaviour
Acceptance of a new client, or changes in an existing engagement, might create a threat to compliance with one or more of the fundamental principles. The Code states the following in relation to client and engagement acceptance:
“320.3 A1 Threats to compliance with the principles of integrity or professional behaviour might be created, for example, from questionable issues associated with the client (its owners, management or activities). Issues that, if known, might create such a threat include client involvement in illegal activities, dishonesty, questionable financial reporting practices or other unethical behaviour.
320.3 A2 Factors that are relevant in evaluating the level of such a threat include:
- Knowledge and understanding of the client, its owners, management and those charged with governance and business activities.
- The client’s commitment to address the questionable issues, for example, through improving corporate governance practices or internal controls.”
In considering whether to accept, or continue, with an engagement, CAs may need to give consideration to the client and sustainability/ESG related matters as part of their assessment. If, for example, a client had received fines for breaches of environmental laws, or was known for treating its employees poorly, or the integrity of its sustainability reporting had been questioned, firms need to make a judgement as to whether they would wish to be involved with such a client from the firm’s risk and reputational perspective.
CAs may wish to consider the “should” vs “could” approach advocated by ICAS in its Guidance on Conflict of Interest which highlights that when firms are assessing whether to accept an engagement there is a need to consider the perceived reputational impact before accepting an appointment. The key determinant is whether the firm “should” accept an appointment, as opposed to whether the firm “could” accept it. This approach is in line with the ICAS Ethics Board’s guidance paper The Ethical Journey: The Right, the Good and the Virtuous which promotes consideration of the reputational aspects of an action as part of the ethical decision-making process to ensure that the most appropriate ethical action is ultimately taken.
Professional competence and due care
CAs in practice should not accept a client or engagement if they do not possess, or cannot acquire, the technical knowledge and skills to perform the services.
The Code states the following:
“320.3 A3 A self-interest threat to compliance with the principle of professional competence and due care is created if the engagement team does not possess, or cannot acquire, the competencies to perform the professional services.
320.3 A4 Factors that are relevant in evaluating the level of such a threat include:
- An appropriate understanding of:
- The nature of the client’s business;
- The complexity of its operations;
- The requirements of the engagement; and
- The purpose, nature and scope of the work to be performed.
- Knowledge of relevant industries or subject matter.
- Experience with relevant regulatory or reporting requirements.
- The existence of quality control policies and procedures designed to provide reasonable assurance that engagements are accepted only when they can be performed competently.
320.3 A5 Examples of actions that might be safeguards to address a self-interest threat include:
- Assigning sufficient engagement personnel with the necessary competencies.
- Agreeing on a realistic time frame for the performance of the engagement.
- Using experts where necessary.”
CAs may also need to think of the broader picture in terms of the way they operate their business and how it might affect their clients’ businesses. A situation could arise where clients need help with their sustainability / ESG responsibilities, but the CA doesn’t know enough about it to guide or advise them properly.
As the Code notes at 320.3 A5, using experts where necessary might be a safeguard – for example, a CA might not necessarily need to be a climate change expert but would need to know when they need to get help from one. However, similar to the provisions in Section 220 in relation to “Relying on the work of others”, paragraphs R320.10 and 320.10 A1 “Using the work of an expert” also caution the professional accountant to determine whether their use is warranted by considering, for example, the reputation and expertise of the expert, the resources available to the expert, and the professional and ethics standards applicable to the expert
If a CA is advising a client, and they miss something due to lack of knowledge about sustainability / ESG matters, it could be damaging to their client and themselves both financially and reputationally. Lack of knowledge in the area could impact the survival of the CA’s business and that of their clients.
Find out more
The guidance signposts the following other areas of the Code where provisions could relate to sustainability related matters (please note that these areas are provided by way of example and should not be considered an all-inclusive list):
- Sustainability and the ICAS Code of Ethics
- Preparation and presentation of information – integrity and objectivity
- CAs shall not knowingly be associated with misleading information
- Internal controls
- Inquiring mind
- Reliance on the work of others or on the output of technology
- Financial interests, compensation and incentives
- Professional competence and due care, confidentiality and professional behaviour
- Acting with sufficient expertise
- Non-compliance with laws and regulations (NOCLAR)
- Organisational culture, including responsibilities with regard to values of equality, diversity and inclusion
- Pressure to breach the fundamental principles
- Having the strength of character to act appropriately
- Speak Up? Listen Up? Whistleblow?
ICAS ethics resources
Find out more about the ethics resources ICAS provides to support its Members below.