Should the regulator have the power to establish a standardised Code of Ethics for all the chartered accountancy bodies?
Loree Gourley, Chair of the ICAS Ethics Board, considers the BEIS consultation proposal for the regulator to have the power to establish and enforce a standardised Code of Ethics for all the chartered accountancy bodies.
The BEIS consultation ‘Restoring trust in audit and corporate governance’ was published on 18 March 2021, with responses being due by 8 July 2021. Amongst the many proposals within the white paper, the Government proposed a significant change for the UK chartered accountancy bodies in relation to their Codes of Ethics.
Currently, the chartered accountancy bodies each have responsibility for their own Code of Ethics. Each Code is however substantively based on the International Ethics Standards Board for Accountants (IESBA) International Code of Ethics for Professional Accountants and founded on the five fundamental ethics principles which are contained within the Code: 1. Integrity; 2. Objectivity; 3. Professional Competence and Due Care; 4. Confidentiality; and 5. Professional behaviour.
The bodies are not permitted to delete any of the provisions of the IESBA Code from their individual Codes, but they are permitted to add requirements and application material where they think additional provisions would be appropriate. However, auditors undertaking an audit in the UK, and professional accountants undertaking other public interest assurance engagements in compliance with the engagement standards issued by the Financial Reporting Council (FRC), are required to comply with the requirements of the FRC’s Ethical Standard instead of the detailed requirements of Part 4A of the Code of Ethics.
In paragraph 11.1.49 of the consultation, the Government proposed “to give the regulator the power to establish a standardised code of ethics with which members of the chartered bodies (either individuals or firms) would be required to comply and which would be enforceable by the regulator using its new powers. This would exclude parts of the code specifically applicable for other regulated services not included within the proposed oversight arrangements. Chartered bodies would be able to add additional ethical requirements specific to their membership which would be enforceable by them.”
ICAS is not supportive of the regulator being able to set and enforce a Code of Ethics for all the chartered accountancy bodies for a number of reasons, which are discussed further below.
Duplication and additional cost
As noted earlier, each of the UK bodies adopts (some with additional requirements but none with lesser requirements) the IESBA Code of Ethics and it is highly likely that ARGA would merely introduce the same Code and, of course, would also scope out the applicability of the independence requirements as these are covered by the FRC’s Ethical Standard, as the professional bodies currently do. The proposed approach would bring in by necessity another layer of consultation as ARGA would have to consult on any proposed changes to the Code that had been approved by IESBA and signed off by the Public Interest Oversight Board (PIOB). This would result in mere duplication and unnecessary additional cost.
Loss of ability of professional bodies to make changes in the public interest
Ethics is at the heart of being a professional body. ICAS believes that each professional body should therefore be responsible for setting its own Code of Ethics. We believe that it is beneficial to have the ability to make our own changes to our Code where we feel that to do so is in the public interest.
For example, ICAS’ The Power of One business ethics initiative encourages CAs to champion the ICAS ethical values and lead in instilling these within the organisations in which they work. However, we also recognise that, in many situations, ‘doing the right thing’ will not be easy and CAs need ‘moral courage’ to ensure the highest standards of ethical behaviour are upheld. In 2017, ICAS adopted ‘moral courage’ as an ‘enabler’ – an underpinning qualitative characteristic required of a professional accountant - in order to ensure compliance with the fundamental ethics principles. The need for CAs to have ‘courage to act morally’ has been highlighted in the ICAS Code of Ethics since then.
Further, ICAS has also been influential in taking ‘moral courage’ to the global level. Following the recent IESBA project to promote the role and mindset expected of professional accountants, new application material is being added to the ‘Integrity’ principle within the IESBA Code of Ethics which contains the substance of the concept of ‘moral courage’ emphasising that integrity includes having the strength of character to challenge others as and when circumstances warrant, in a manner appropriate to the circumstances. These changes become effective in the IESBA Code from 31 December 2021, with ICAS planning to introduce the changes to its Code of Ethics with effect from 1 January 2022.
ICAS has used its ability to add content to its Code of Ethics not only in relation to moral courage but also, most recently, in relation to equality, diversity and inclusion when ICAS introduced amendments to its 2021 Code to highlight the importance of CAs respecting values of equality, diversity and inclusion. This ability to move quickly on such matters is not something that would be as easy for ARGA, but also, if everything is to be standardised by the regulator, will this permit the same level of innovation? Could it stifle the ability of individual professional bodies to be able to make positive changes and advance the Code of Ethics at the global level in the public interest?
Regulator focus on audit and PIEs
The FRC’s focus has been primarily on audit to date. Even with the proposed changes its focus will very much be on Public Interest Entities (PIEs). The Code of Ethics applies to all professional accountants including those in small and medium sized practices and businesses and to those in the public and third sectors. We do not believe that the FRC is best placed to consider the ethical requirements of such professional accountants.
How will this work in practice?
Further, from a practical perspective, at the current time a chartered accountant simply has to go to their own accountancy body to find “the” copy of the Code which is applicable to them. If the regulator has control over the establishment and enforcement of a standardised Code, where is “the” Code going to be hosted? Would a chartered accountant have to remember to navigate both the regulator’s website as well as their own professional body’s website to find all the provisions to which they must adhere? How will everything fit together? How will it all work in practice?
ICAS therefore believes that there is a need for the government to rethink this misguided proposal.
ICAS ethics resources
ICAS is committed to providing ethics resources and support to its Members. Since 2015, ICAS has published a series of publications, guidance and resources as part of the Power of One initiative which are all available on icas.com.
In November 2020, to mark the fifth anniversary of The Power of One, ICAS issued second editions of its series of publications on ethical leadership:
- Ethics -The Power of One
- The Power of One – Personal responsibility and ethical leadership
- The Power of One – Moral Courage
- The Power of One – Personal Reputation
- The Power of One – Organisational culture and values
- The Power of One – The CA and the organisation
- The Ethical Journey – The Right, the Good and the Virtuous
ICAS also offers the following:
- guidance on conflict of interest;
- an ethical decision making framework;
- ethics videos;
- case studies, including CAs’ real-life ethical dilemmas featured within the ICAS research publication Speak up? Listen Up? Whistleblow?; and
From 1 January 2021, compulsory ethics CPD is introduced for all ICAS Members. This does not involve compulsory attendance at courses or the purchase of material – it could simply mean some reading of ethics-related material available online. In addition to ICAS’ own ethics resources as noted above, other websites provide useful sources of information as explained here.
If you have an ethical query, including a query on the provisions within the Code of Ethics in relation to values of equality, diversity and inclusion, ICAS offers an ethics helpline service.
ICAS is also partnered with whistleblowing charity Protect to provide members and students with access to an independent, confidential helpline. This service offers free advice regarding whistleblowing and speaking up.