Ethics are the roots of the accounting and finance profession. To the ACCA student and professional, their adherence to the Code of Ethics and Conduct is a matter not only of regulatory requirement, but it is one of commitment towards public trust, transparency, and accountability.
Set amidst the increasing scrutiny on corporate governance and financial reporting, understanding ethical principles and how one can spot threats becomes of utmost importance. This blog breaks down the key principles of the ACCA Code, explores some common ethical threats, and gives real-life examples to help students through some complex ethical dilemmas that may arise in their careers.
The Five Fundamental Principles of Ethics
The ACCA Code of Ethics prescribes five fundamental principles that every professional should adhere to:
- Integrity
Integrity implies honesty, fairness, and truthfulness in all professional matters. An accountant should not accept a conflict of interest and should not associate with misleading information.
Example: In 2021, the UK Financial Reporting Council fined a Big Four firm £2.3 million for integrity breaches because it had failed to take adequate action over conflicts of interest during an audit.
- Objectivity
Objectivity involves impartiality in making choices without bias. This principle is most crucial in auditing since their independence cannot be compromised.
Stat: A 2022 Global Ethics Survey by IFAC found that 35% of accountants faced pressure to compromise objectivity, often from senior management.
- Profession and Due Care
Professionals need to update themselves in respect of knowledge as well as in the area of ability. Even updates about regulations or laws at any time within new areas – sustainability reporting and cryptocurrency accounting – must be covered.
Example: Collapse of Carillion in 2018 evidenced a lack of Competence: the auditors missed red signals over the group’s health and welfare.
- Conflict of Interest
Accounts should not disclose client information without jurisdictional requirement and obligation. In the period when cybersecurity threats increase so much, data protection becomes highly important.
To support this statement, in the year 2023, the insider threat vector accounted for a stunning 43% of breaches in finance, according to PwC.
- Professional Behavior
Members must also follow the law and not engage in any activity that may bring the profession into disrepute. Examples include bribery, corruption, and unethical marketing.
Safeguards – Common Ethical Threats
- Threat of Self-interest
Occurs when personal interests may be biased by professional judgment such as through financial gain or job security.
Example: In 2019, KPMG was fined $50 million by the SEC when the auditors leaked confidential audit information in order to cheat on internal training exams.
- Self-Review Threat
That occurs when professionals review their work that leads to overconfidence or oversight.
Example: The Enron scandal, 2001, where audits passed faulty financial statements which they had prepared, hiding a debt of $74 billion.
- Advocacy Threat
Happens when promoting a client’s interest conflicts with objectivity-for example, aggressive avoidance of tax schemes.
Statistic: The leak in the Pandora Papers, 2021, shows how accounting firms helped high net worth individuals with offshore tax evasion.
- Familiarity Threat
Over-familiarity with clients often clouds judgment. Long-term auditor-client relationships create the potential.
Example: Auditors failed to detect fraud, as uncovered during the 2020 collapse of Wirecard, partly due to a relationship with management of 10 years.
- Intimidation Threat
The pressure from superiors or clients to perform unethically.
Stat: 28% of trainees experienced intimidation to manipulate financial statements in one 2021 ACCA survey.
Real-Life Consequences of Ethical Breakdown
The consequences of ethical failures can have a devastating impact on careers, organizations, and economies. Consider:
- Enron: Its collapse resulted in the loss of 20,000 jobs and the dissolution of Arthur Andersen, then a top-five accounting firm.
- Audit Quality Suffers: The FRC’s 2021 audit quality report showed that 29% of FTSE 350 audits required improvements, citing threats due to familiarity and self-interest.
Regulatory Backlash: Post-scandal reforms such as Sarbanes-Oxley (2002) and the EU Audit Regulation (2016) placed more stringent ethical requirements.
Guards and Best Practices
The ACCA suggests taking steps ahead of the threats:
- Consultation: Get guidance from mentors, ethics committees, or ACCA’s advisory helpline.
- Rotation Policies: Rotate audit partners at regular intervals to minimize familiarity threats.
- Transparency: Make declarations of conflict of interest promptly.
Continuous Education: Attend ACCA workshops on ethics and new technologies like AI ethics.
Conclusion
The ACCA Code of Ethics goes beyond the simple guidelines to build a framework that supports professional trust based on the public interest.
Understanding values such as integrity and objectivity, identifying threats like self-interest or intimidation, and applying safeguards – all are about enabling ACCA students to navigate ethical dilemmas with confidence.
Your ethical commitment as future leaders will not only define your journey but also define the face of the global accountancy profession. Remember: Ethical behavior is a culture of duty that pays off, not just a way to avoid punishment.
