ICAI - GUJARAT ETHICAL DILEMMA for CAs` Date 04.08.2018 By CA. - - PowerPoint PPT Presentation

By

• CA. V. VENKATA SIVAKUMAR,

B.Sc.(Chemistry), FCA, LLM, (Constitutional Law) Cert. CCA, DISA, FAFD, (ICAI) Resolution Professional (IBBI) and Insolvency Professional, Chennai

ETHICAL DILEMMA for CAs`

Date 04.08.2018

ICAI - GUJARAT

• Introduction – Ethics for Professional

Accountants

• Case Studies
• Final Discussion and Closing Comments

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• ICAI is enacted in 1949 much before the adoption of
• ur Indian constitution
• High profile members in the fields of accountancy

and business

• Approximately 3 Lakhs members, the second largest

accounting body with Excellent reputation worldwide

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• Ethics is concerned with how an attitude, action
• r decision is determined as ‘right or wrong or

good or evil’ (Donaldson, 1988).

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• Ethics is a global issue
• All accountants are facing similar decisions
• IFAC code applies globally and is at the heart of

ethics

• Local factors come into play in application of ethics

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• ICAI is a statutory body dependence on public

confidence which is driven by institutional and members Ethics and integrity

• Ethics underlies judgement in a principles based

accounting regime

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THE PROFESSIONALACCOUNTANT IN PUBLIC PRACTICE

All members (and registered students) of ICAI bodies have a responsibility to behave professionally and ethically at all times. In addition, a professional accountant who is a principal or a senior employee within a practice will have a particularly important role to play in creating, promoting and maintaining an ethical culture within the practice and, possibly, among the clients of the practice. You may be approached by others within the practice who wish to report unethical behavior and, as a senior figure, you will have an impact

• n its ethical tone

Cont…

If you are made aware of unethical practices among clients, it may be more difficult to determine your responsibilities. But an accountant in public practice carries a great deal of responsibility, and may be subject to scrutiny by the staff of the practice, clients and other members of the local

• community. In particular, a wide range of clients will expect

a high level

• f

professional competence from their accountant, and the trust that they place in their accountant requires the accountant’s integrity to be unquestionable.

Cont…

A professional accountant in public practice has a responsibility to further the legitimate aims of his or her clients. The ethical codes of the CCAB bodies do not seek to hinder a professional accountant in public practice from properly fulfilling that responsibility, but address circumstances in which compliance with the fundamental principles may be compromised.

Cont…

An accountant in public practice will want to act in the best interests of his or her clients. However, he or she also has a responsibility to act in the public interest, which will require

• bjectivity to be exercised at all times (not only when providing

assurances to third parties). The duties of the accountant in public practice who faces an ethical dilemma cannot be easily

• reconciled. On the one hand, it is good business practice to

work closely with your clients; on the other hand, you will sometimes be expected to challenge their decisions, and even distance yourself from them.

RESOLVING ETHICAL DILEMMAS

These case studies are compatible with the ethical codes of the CCAB member bodies, which are derived from the Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants (IESBA) The case studies illustrate the application of the ‘conceptual framework’ approach to resolving ethical dilemmas. This approach focuses on safeguarding the fundamental principles

• f:
• Integrity,
• Objectivity,
• Professional competence and due care,
• Confidentiality, and
• Professional behavior.

In order to do so, it is important to be alert to situations that may threaten these fundamental principles. Identified threats need to be evaluated and managed, to ensure that they are either eliminated or reduced to an acceptable level. Threats may arise as a result of any of the following:

• Self-interest: the threat that a financial or other interest will inappropriately influence

your judgment or behavior

• self-review: the threat that you will not properly evaluate the results of a previous

judgment made or service performed by you (or someone else within your practice) when forming a judgment as part of providing a current service

• advocacy: the threat that you will promote a position (usually your client’s) to the point

that your objectivity is compromised

• familiarity: the threat that, due to a long or close relationship with someone, you will be

too sympathetic to that person’s interests, or too accepting of their work

• intimidation: the threat that you will be deterred from acting objectively because of

actual or perceived pressures, including attempts to exercise undue influence over you.

When resolving an ethical conflict, consider carefully whether

• ther parties could or should be involved in discussions and, if

appropriate, how those parties should be approached. As a professional accountant in public practice, you may find yourself under significant time pressure as you try to satisfy the competing demands of your clients. You could be expected to spend less time discharging your duties than you feel is actually required, and this could, in turn, give rise to a risk that any ethical issues that arise will not be adequately considered.

If you are facing, or think you might be facing, an ethical dilemma, you may wish to seek advice from your professional body or obtain independent legal advice. Consider whether your actions in response to the situation and the advice obtained are sufficiently well documented, either by way of minutes or your

• wn records. In many situations, the perception of a reasonable

and informed third party will be relevant to the resolution of the dilemma, and you might be required to evidence the steps you took to resolve the issue

KEY FINDINGS

TABLE 1: COMMON ETHICAL ISSUES

TABLE 2: COMMON CAUSES OF ETHICAL ISSUES

TABLE 3: COMMON RESPONSES TO ETHICAL ISSUES

ETHICS CHECKLIST

• Has the Council set and adhered to corporate values that

create the expectation that all business be conducted legally and ethically?

• Has the Council promoted risk awareness and conveyed the

expectation that it does not support excessive risk-taking?

• Has the Council ensured that appropriate steps are taken to

communicate corporate values, professional standards or codes

• f conduct together with supporting policies?
• Has the Council outlined the consequences of unacceptable

behavior?

• Does the organization have a code of conduct or a

comparable policy that defines acceptable and unacceptable behaviors?

• Does the code of conduct make clear that employees are

expected to conduct themselves ethically in addition to complying with laws, regulations and company policies? THE COUNCIL

• Review ethical issues that came to the attention of the

Council during the year including conflicts of interest; gifts register; and procurement issues.

• Review how the issues were dealt with. Was the action

adequate? If not, what can be done to redress this?

• Review ethical issues arising from the most recent review

and/or update of the risk register including reputational issues; supplier code of conduct; donations policy; corporate social responsibility policy; ethical procurement code; and anti-fraud policy.

• Review how the issues were dealt with. Was the action

adequate? If not, what can be done to redress this?

ETHICAL ISSUES ARISING

• A secure channel should be available to employees to report

ethical issues that concern suspected violations of company codes

• f practice.
• Employees should be encouraged and able to communicate

confidentially and without the risk of reprisal, legitimate concerns about illegal, unethical or questionable practices.

• The organization's corporate values should recognize the

importance of timely, frank discussion and the escalation of problems.

• There should be direct or indirect communication to the

Council (e.g. through an independent audit process).

• Does the Council determine how, and by whom, legitimate

concerns shall be investigated and addressed by an objective independent internal or external body, senior management and/or the Council itself?

WHISTLEBLOWERS LEGISLATION

Has the Council members’ handbook been issued to all Council members and do they understand it? Has it been discussed at a Council meeting? Does the handbook detail the new codification of directors’ duties in compliance with Companies Act 2014? Has the Office of the Director of Corporate Enforcement (ODCE) booklet, Principle Duties and Powers of Company Directors Under the Companies Act (2014), been issued? Has the compliance and ethics programme been integrated into standard internal audit procedures?

COUNCIL MEMBERS’ RESPONSIBILITIES

Ensure that the organization's code of ethics and ethics review are detailed and explained in the governance statement of the annual report. Penelope Kenny FCA is Director of Arts Governance and author of Corporate Governance for the Irish Arts Sector. DISCLOSURE TO STAKEHOLDERS



Monthly financial targets not likely to be met and/or possible breach of bank covenants.



Possible manipulation of figures in financial accounts.



In the Indian bonuses/share options for employees may depend on certain level of profits being reached

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• Pressure from client/bank if an audit report

needs to be signed today and there is insufficient information to know whether accounts show a true and fair view

• Whether to make people aware of conflicts of

interest in business dealings.

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• Some issues may be trivial – but there may still be a right

and wrong course of action.

• Others may lead to severe consequences – as various

accounting scandals worldwide can testify.

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• Started as an attempt to disguise a poor quarterly

performance and then got out of hand.

• Manipulation of accounts for several years.
• Impact of scandal on India’s reputation.

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

“It was like riding a tiger, not knowing when to get

• ff

without being eaten.” Mr B Ramalinga Raju, Chairman and Chief Executive

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• You are a financial controller in a medium sized

company.

• The financial director asks you to follow an

accounting policy for certain types of transactions which is not in accordance with the accounting requirements.

• In year 1 these transactions are immaterial.
• What do you do?

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• Assume that you did as you were told.
• In year 2 these transactions are now material – what do

you now do - have you willingly approved the accounting treatment – can you reverse the decision?



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• ‘Creeping up’ effect – small breaches can lead to

greater breaches.

• Auditor has to be careful – item could be

immaterial to begin with.

• Pay attention to the possible longer-term

consequences of current business decisions.

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• This is the first challenge.
• If you can’t identify the issue then how can you do

anything about it?

• Need for ethics training - students and qualified

accountants.

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“No success or achievement in material terms is worthwhile unless it serves the needs or interests of the country and its people and is achieved by fair and honest means” …….JRD TATA

• Consider the dilemma/circumstances.
• Is it a simple black or white matter?
• Refer to the ICAI/IFAC Code of Ethics
• Refer to your employer’s Code of Conduct.

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• Discuss with trusted colleagues or friends in the

profession (confidentiality issues?)

• Does your employer have an ethics helpline?
• Discuss with the ICAI?

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• Ultimately, you must decide your course of action.
• Professional responsibility.
• How would it look if my actions were reported on the

front page of the newspaper?

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• The Code is principles-based but is under pressure from

some countries to become more rules based.

• “Shall” instead of “Should”.
• Four parts to the Code

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• Integrity
• Objectivity
• Professional Competence and Due Care
• Professional Behaviour
• Confidentiality

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Follow the fundamental principles Full guidance where applicable

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• Having a Code of Ethics is merely a starting point - it is

the application of it that matters.

• Enron had a fantastic ethical code.
• However, they never embedded the proper message.
• Tone at the top is crucial.

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• At present there is no mandatory requirement for

qualified members to undertake training in ethics.

• This is kept under review.
• ICAI has moved to an output based system of

Continuing Professional Education (CPE).

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• Taking Ethics to Heart



(research based recommendations on embedding ethics more firmly in business and the profession)

• What do you do now?



(ethical case studies based on members in practice)

• Available from ICAI website

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• Objective is to bring ethical problems to life.
• Encourage debate – not all ethical issues are black and

white.

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• Issues concerning disciplinary jurisdiction
• A) The Adjudicating process
• B) Independency of the mechanism
• C) Quality of the judgments and transparency
• D) Pro Active Nature missing – big and mighty go

scot free

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• Issues concerning governance
• 1. The present system of council, regions and branches
• 2. Need for independent audit by CAG
• 3. whistle blower mechanism and suo motu

proceedings

• 4. structural frame work for grooming future leaders in

the administration including quality review

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• Courage is the additional key principle/value.
• solution - can be a problem for members in business.

Less of a problem for members in arguer accountancy practices.

• However, to do the right thing applies to all accountants.
• Seek internal and external support when required.

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• A quote from an old article on ethical business reads,

“making money by being immoral is short sighted because you’ll soon be found out. Making money by being moral will mean you’ll succeed long term”.

• We have been living in an age of short sightedness,

we haven’t been looking far enough ahead to make the right decisions.

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• Only by being ethical can be we make the “right”

decisions.

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THANK YOU