The ICAS Code of Ethics, The Power of One, and sustainability: A CA’s ethical responsibilities
Ann Buttery, Head of Ethics, ICAS Policy Leadership, explains why every CA has their part to play in their own sphere of work around ethics and sustainability.
The Power of One
This month, ICAS celebrates the sixth anniversary since the launch of its business ethics initiative, The Power of One. In November 2015, ICAS called on all CAs to place ethical leadership at the heart of their professional responsibilities, to shape the culture and values of their organisations, to help re-establish ethics at the core of business practices and to rebuild public trust in business.
ICAS recognises the power of every individual CA – ‘the Power of One’ – to influence those around them. The Covid-19 pandemic now presents a positive opportunity for organisations and business leaders to refresh their culture and values in the “new normal”. Through their ethical behaviour, CAs are a force for good in the organisations in which they work. No matter the career stage or level of seniority, every CA can have a strong role in shaping the culture and values of the organisations in which they work. The cumulative effect of their influence can help reinforce the importance of ethics at the core of business practices, and of a more responsible and holistic approach to business, to the benefit of our broader society.
CAs are a vital part of any organisation. They undertake many different roles across a variety of sectors. This Power of One anniversary month is a reminder to CAs of the importance of the message of The Power of One: the importance of every CA taking personal responsibility for ethical leadership; the need for every CA to recognise the part they have to play to promote ethics in the organisations within which they work; and the fundamental requirement of the accountancy profession to act in the public interest.
Sustainability and the CA
With the UN Climate Change Conference, COP26, taking place in Glasgow this month the focus is very much on climate change. It is therefore also an opportune time to highlight that climate change, and more broadly sustainability, is not a niche topic that CAs can ignore. ‘Sustainability’ is not just about climate change. The three pillars of sustainability - Environmental, Social and Governance (ESG) – highlight that in addition to environmental related matters (the “E”), sustainability is also about people (the “S”) and leadership (the “G”).
There is an ever-growing emphasis on sustainability and ESG at government and regulatory level, as well as increased expectations for organisations to behave responsibly. A CA can find themselves being involved in sustainability related matters in many ways: from accounting for, and reporting on, climate change and environmental considerations; assessing and managing the risk and opportunities associated with the social inclusion and equality agenda; providing assurance on an organisation’s sustainability report; to being a board member responsible for setting the ‘tone at the top’ of an organisation and ensuring that a culture of ‘doing the right thing’ exists at all levels within the organisation.
The Power of One champions ethical leadership. Ethics is not something that sits separately or is only a part of one element of sustainability and ESG. Ethics is the umbrella which sits over all of it. Every CA has their part to play in their own sphere of work around ethics and sustainability. Every CA can be proactive and make a difference.
Sustainability and the ICAS Code of Ethics
ICAS Members and CA Student Members have to comply with the five fundamental ethics principles enshrined in the ICAS Code of Ethics (which is substantively based on the Code of Ethics published by the International Ethics Standards Board for Accountants (IESBA)). With effect from 1 January 2022, IESBA revisions are being made to the Code to promote the role, mindset and behavioural characteristics expected of all professional accountants (‘the 2022 role and mindset revisions’). The fundamental ethics principles are defined as follows:
(a) Integrity - to be straightforward and honest in all professional and business relationships.
(b) Objectivity – to exercise professional or business judgment without being compromised by:
(ii) Conflict of interest; or
(iii) Undue influence of, or undue reliance on, individuals, organisations, technology or other factors
(c) Professional competence and due care – to:
(i)Attain and maintain professional knowledge and skill at the level required to ensure that a client or employing organisation receives competent professional service, based on current technical and professional standards and relevant legislation; and
(ii)Act diligently and in accordance with applicable technical and professional standards.
(d) Confidentiality - to respect the confidentiality of information acquired as a result of professional and business relationships.
(e) Professional Behaviour – to:
(i) Comply with relevant laws and regulations;
(ii) Behave in a manner consistent with the profession’s responsibility to act in the public interest in all professional activities and business relationships; and
(iii) Avoid any conduct that the professional accountant knows or should know might discredit the profession.
Whilst sustainability and ESG related matters are generally not specifically highlighted within the ICAS Code of Ethics currently, it is important for CAs to be aware they are nevertheless contained within the substance of the Code. CAs must always therefore ensure their obligations to the five fundamental ethics principles are met in terms of sustainability and ESG related matters.
A number of areas of the Code are signposted below where provisions in the Code could relate to sustainability related matters. This is provided by way of example and should not be considered an all-inclusive list.
Integrity and objectivity
Paragraph R111.2 of the 2022 Code of Ethics in relation to the fundamental ethics principle of ‘Integrity’ states:
“A professional accountant shall not knowingly be associated with reports, returns, communications or other information where the accountant believes that the information:
(a)Contains a materially false or misleading statement;
(b)Contains statements or information provided recklessly; or
(c)Omits or obscures required information where such omission or obscurity would be misleading.”
The current non-financial or sustainability reporting landscape is extremely fragmented which is recognised as a source of confusion when identifying the most appropriate choice of reporting framework. CAs need to be aware that, in accordance with the principle of integrity, they cannot knowingly be associated with misleading information and must address any threats accordingly.
CAs need to be mindful that the provision of non-financial information in relation to ESG is relatively new and therefore the controls are unlikely to be as good as their organisation’s financial reporting controls. The individuals that are providing this information might not always understand the importance of the trustworthiness of the data and that people are relying on the information.
There is also a risk that if information is received from a third party, such as carbon emissions data, there might be an assumption that the information is accurate; however, in reality, this might not necessarily be the case. Following the 2022 role and mindset revisions, the fundamental ethics principle of ‘Objectivity’ now highlights the risk that “Undue influence of, or undue reliance on, individuals, organisations, technology or other factors” could impair a professional accountant’s objectivity. New application material is also provided in paragraphs 120.12 A1 to 120.12 A3 to highlight the importance of being aware of conscious or unconscious bias when applying the conceptual framework. The Code now includes a list of helpful examples to assist professional accountants recognise when bias could be a threat to their professional judgement, including in relation to technology (‘automation bias’).
The 2022 role and mindset revisions also introduced a requirement at paragraph R120.5 for all professional accountants to have an ‘inquiring mind’ when identifying, evaluating and addressing threats to the fundamental principles. This represents the need to consider the source, relevance and sufficiency of information obtained taking into account the nature, scope and outputs of the professional activity being undertaken and being open and alert to a need for further investigation or other action.
Section 220 of the Code sets out specific requirements and application material in relation to the “Preparation and presentation of information”, including relying on the work of others and addressing information that is or might be misleading.
CAs need to be aware of the threats and ensure they are adhering to the fundamental ethics principles when it comes to their organisation’s non-financial reporting, including sustainability reporting. However, CAs also have a role to play in education – in assisting organisations embed internal controls for non-financial reporting.
Professional competence and due care
The discussions around sustainability and ESG are taking place at all levels and, as a result, CAs now find themselves having to consider matters that traditionally have not been considered part of the core disciplines of an accountant. CAs must comply with the fundamental ethics principle of professional competence and due care by attaining and maintaining their professional knowledge, including with regard to sustainability and ESG matters. Section 230 of the Code sets out specific requirements and application material in relation to “Acting with sufficient expertise”.
The fundamental principle of confidentiality requires professional accountants to respect the confidentiality of information acquired as a result of professional and business relationships. However, the Code also states in paragraphs 114.1 A1 and 114.1 A2 that there are certain circumstances where professional accountants are or might be required to disclose confidential information or when such disclosure might be appropriate, and the factors to consider in deciding whether to disclose confidential information. This principle of confidentiality is equally applicable to sustainability related information.
Non-compliance with laws and regulations (NOCLAR)
In order to address threats to the fundamental ethics principles of integrity and professional behaviour, the ‘Non-compliance with laws and regulations’ (NOCLAR) sections in the Code (Sections 260 and 360) require auditors or other professional accountants in public practice or business, who discover, or suspect, non-compliance with laws and regulations directly impacting material items in financial statements, or are fundamental to an organisation’s operations, to take the appropriate action. The Code notes examples of laws and regulations which these sections address including: fraud, corruption and bribery; money laundering, terrorist financing and proceeds of crime; securities markets and trading; banking and other financial products and services; data protection; tax and pension liabilities and payments; environmental protection; and public health and safety.
Equality, diversity and inclusion
An element of the “S” of ESG that is specifically highlighted within the Code is the CA’s responsibilities in relation to values of equality, diversity and inclusion. With effect from 1 January 2021, the following changes were incorporated into the Code to highlight the importance of CAs respecting values of equality, diversity and inclusion:
- An addition to the application material in Subsection 111 in relation to the fundamental principle of Integrity;
- An addition to the requirement in Subsection 115 in relation to the fundamental principle of Professional Behaviour; and
- An addition to the application material in Section 200 in relation to organisational culture and Professional Accountants in Business.
The 2022 role and mindset revisions inserted new application material to highlight the importance of an ethical organisational culture, including paragraphs 120.13 A2 and 120.13 A3 which state:
“120.13 A2 The promotion of an ethical culture within an organisation is most effective when:
a)Leaders and those in managerial roles promote the importance of, and hold themselves and others accountable for demonstrating, the ethical values of the organisation;
b)Appropriate education and training programs, management processes, and performance evaluation and reward criteria that promote an ethical culture are in place;
c)Effective policies and procedures are in place to encourage and protect those who report actual or suspected illegal or unethical behaviour, including whistle-blowers; and
d)The organisation adheres to ethical values in its dealings with third parties.”
120.13 A3 Professional accountants are expected to encourage and promote an ethics-based culture in their organisation, taking into account their position and seniority.”
The new application material recognises that it is imperative that leaders of organisations set the appropriate ‘tone at the top’ and that they, and management, lead by example, but also that professional accountants at all levels have an important role to play in embedding a culture of ethics within their own particular sphere of influence in an organisation (the “G” of ESG).
The new provisions are in line with the themes of ICAS’ The Power of One, recognising the importance of individual ethical leadership within organisations. The Power of One ‘Organisational culture and values’ publication echoes the sentiments in the new provisions highlighting the importance of a culture of ‘doing the right thing’.
The new provisions also highlight the importance of speak up mechanisms within organisations. As discussed in the ICAS research ‘Speak Up? Listen Up? Whistleblow?’, which documented the real-life experiences of ICAS members when encountering ethical dilemmas.
As noted earlier, due to the current complexity of the non-financial reporting landscape, and also the means by which such data may be collated by organisations, there could be heightened risk to the integrity of the non-financial information being provided by organisations. Many organisations are now reporting sustainability related information, but currently this information is not always assured and even if it is assured, the assurance is not always provided by independent professional accountants. The focus of investors and regulators is increasingly now on the important role that assurance can play in ensuring the trustworthiness - the reliability and the robustness - of sustainability information reported.
The accountancy profession has a responsibility to act in the public interest. Sustainability is relevant and important for all CAs. Regulation and civil society is ever increasingly now demanding information as to how organisations are meeting their ESG obligations. CAs need to understand the risks, but should also recognise the opportunity to play their part.
The Power of One calls upon all CAs to demonstrate ethical leadership. The quality, consistency, and reliability of data is critical for the discussions about these materially relevant ethical, societal and sustainability matters. The CAs of today and tomorrow have a key role to play.
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.