Emerging Ethical Challenges for CPAs

Transcription

1 Professional Development Course Emerging Ethical Challenges for CPAs (Plenary session from Beyond Financial Reporting Conference) COPYRIGHT Chartered Professional Accountants of British Columbia All rights reserved. No part of this publication/course material may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means (photocopying, electronic, mechanical, recording or otherwise) without the prior written permission of the copyright holder and publisher, applications for which shall be made to the Chartered Professional Accountants of British Columbia, West Hastings Street, Vancouver, BC, V6B 4N6. DISCLAIMER This course material deals with complex matters and may not apply to particular facts and circumstances. As well, the course material and references contained therein reflect laws and practices which are subject to change. For these reasons, the course material should not be relied upon as a substitute for specialized professional advice in connection with any particular matter. Although the course material has been carefully prepared, neither the Chartered Professional Accountants of British Columbia, the course author and/or firm, nor any persons involved in the preparation and/or instruction of the material accepts legal responsibility for its contents or for any consequence arising from its use. January 2017

2 EMERGING ETHICAL CHALLENGES FOR CPAs Michael McDonald, PhD Professor Emeritus of Applied Ethics University of British Columbia 1

3 A word about challenges Challenges just another way of saying, difficulties, obstacles, negatives? Challenges = difficulties plus opportunities! Risk/Reward, Pain/Gain, threats/opportunities, negatives/positives 2

4 Today s challenges 1. Digestion challenge post-lunch talk 2. Absorption challenge full morning plus full morning of presentations 3. Fear of ethics challenge just platitudes and rules? 4. PD credit challenge is it on the exam? 3

5 Focal point side / edge of the desk Common situation for talented & valued individuals Take on additional responsibilities beyond our normal responsibilities Requires extending our skill sets In new and unmapped terrain Raises two questions 1. What are the opportunities and threats? 2. What are our strengths and weaknesses? 4

6 Today s talk I. Establish ethical reference points II. Describe common side/edge of the desk situations III. Identify ethical opportunities, threats, & safeguards IV. Conclusion & discussion 5

7 I. Ethical reference points My aim to facilitate ethical thought & action Also to dispel common myths about ethics Ethics just a matter of gut reactions Ethics is always the voice of no Ethics an optional add-on in professional & business life Relation to professional standards 6

8 Ethics Is about the terms on which A. We want to interact with each other B. Our standards of acceptable behaviour, ideals and values C. Plus appropriate ways of settling disagreements Ethics has both personal & organizational sides P.S. ethical & moral used interchangeably 7

9 Ethics: where from, where to 1. Where from Instinctive Social environment or mores: mainly caught rather than taught 2. But we also acquire critical skills Learning from our and others experiences Reasoning 3. Two dimensions Descriptive the is side what we actually do Evaluative the ought side what we should do 4. Accounting parallels 8

10 The deciding vote Ethics should have the final word But take into account all relevant factors Technical accounting standards Business and financial Legal Social In other words, doing the right thing is not just an option but an imperative! 9

11 Moral behaviour 1. Ability to recognize a situation as having a moral component 2. Ability to make a judgment as to which action is right, fair, just, appropriate 3. Commitment to morally appropriate action 4. Possession of appropriate personal qualities (perseverance, courage) to carry out morally appropriate actions James Rest 10

12 Moral sensitivity first component Recognizing a situation as having a moral component Requires awareness + responsiveness Ethical blindness & blind spots Conflicts of interest Seeing only business aspects, missing ethical dimensions 11

13 Rationalizations The psychology of rationalization is a powerful cause of ethical blindness: Standard practice Everybody does it Materiality Authority Distancing It doesn t really hurt anyone Just following orders and If I don t do it someone else will Someone else s responsibility 12

14 Rationalizations Loyalty I know its against the rules but I don t want to hurt my client, company or friend Isolated incident - Its just this once, it won t happen again Tunnel vision Only doing my job 13

15 Moral judgement second component Ability to make a judgement as to which alternative action is right, fair, just and most appropriate Respects stakeholders, professional and general ethical obligations Requires professional skepticism, including the ability to set aside one s own self-interest Threats include bias, selective choice of evidence or standards, or jumping to conclusions 14

16 Making a moral judgement Five step decision making guide* 1. Identify the problem 2. Specify feasible alternatives 3. Use relevant decision making criteria to assess the alternatives 4. Propose and test possible resolutions of the problem 5. Make a decision, live with it and learn from it * Michael McDonald, Ethical Decision Making Framework (Version 5.2) 15

17 Moral judgement threats & safeguards 1. Identifying only part of the moral problem 2. Missing feasible alternatives; only considering unrealistic options 3. Missing important ethical criteria from professional and general moral standards 4. Not stress testing possible alternative solutions; failure to use a sensitivity analysis 5. Failure to learn from ethical successes and failures 16

18 Moral motivation third component The desire and intention to put moral judgement into action Making a real commitment Deeds, not just words 17

19 Moral character fourth component Possession of appropriate personal qualities (perseverance, courage) to carry out ethically appropriate actions Forms the moral muscle to act ethically Requires strength building exercises Caught rather than taught Role models Organizational culture 18

20 Four component model of morality James Rest Moral Sensitivity Moral Judgement Moral Motivation Moral Character 19

21 Organizational dimensions Rest s four step model applies to organizations as well as individuals Is the organization morally sensitive? Modelled by senior and middle management Reflected in organizational structures Fostered by an ethical organizational culture 20

22 II. Side of the desk situations #1 Alice is a real leader in internal audit, so she is asked to take on a leadership role in HR #2 Mandeep works in finance but is asked by colleagues in sales for help in preparing estimates & interacting with customers #3 Howard works in a small enterprise where he handles finance and multiple non-accounting tasks 21

23 Add On roles & responsibilities Having a main occupational role within your professional skill-set & Then getting tasked with additional responsibilities that pulls you beyond your professional skill set 22

24 Why this happens Organization s size may lead to multi-tasking demands The SME Unanticipated rapid financial or organizational change The need to up-size or down-size quickly Gaps that need to be covered Request from colleagues for mentoring in non-accounting areas You spot an interesting way of expanding your skill set 23

25 III. Ethical issues 1. Context 2. Opportunities 3. Threats 4. Safeguards 24

26 Normal accounting context Ethical implications of being a professional Implications of knowingly or negligently making an error in your area of expertise Reliance of third parties on your expertise Higher standards of conduct expected due to your professional standing The importance of objectivity and independence 25

27 Side of the desk context Working outside the normal accounting context Still seen by stakeholders as a CPA Also may be special ethical standards for the side of the desk context Examples: health, human relations, communications, sales, lobbying government 26

28 Opportunities Expanding skill sets Bring accounting talents to new areas Assist the organization in fulfilling its mission Grow as a person and a professional 27

29 Threats Neglect of responsibilities; over-commitment Competence issues Conflicts of interest Conflicts of roles 28

30 Safeguards neglect & over-commitment Find out what you are getting into Guard, manage and prioritize your time and attention Have defined responsibilities, including exit options In short, Know your limit, play within it 29

31 Safeguards competence issues Identify the competencies needed for the new side of the desk role Heed ethical norms for the side of the desk role Do a realistic assessment of what is needed to learn on the job 30

32 Further safeguards Be honest don t pretend to competences you lack Take advantage of opportunities for developing new competences Seek advice from trusted advisor and mentors 31

33 Conflicts of interest threats COIs distort professional judgement so we don t act in the best interests of appropriate stakeholders Can be either financial or non-financial Can be subtle fly beneath our ethical radar Can include apparent as well as actual conflicts 32

34 COI safeguards How does it look from the outside? Sunshine full disclosure Vacating one of the conflicting interests Getting appropriate oversight 33

35 Conflicts of Roles - Threats Involve conflicting responsibilities Not the same as conflicts of interest Role A puts you in conflict with role B Examples The internal auditor with an operational role Financial controller involved in sales 34

36 Conflict of roles safeguards Vacate one of the roles at least temporarily Establish boundaries Delegate to avoid such situations Do not compromise your professional responsibilities as a CPA 35

37 Organizational dimensions CPAs in leadership positions Identify side of the desk situations in your organization Specify opportunities and threats Put in place safeguards Use both soft and hard safeguards Hard: rules, enforcement, penalties Soft: Incentive structures, mentors, corporate cultures, recruitment and promotion as well as rules, penalties and enforcement 36

38 Ethical positives Habits of objectivity and independence should help you manage threats successfully Draw on your professional organization and colleagues for guidance Develop new networks of mentors for the side of the desk roles Expanding into side of desk activities can be a positive for you, your organization and society as a whole 37

39 IV. Summing up you should be able to 1. Understand and be able to use key ethical concepts 2. Identify side of desk situations 3. Recognize their ethical dimensions including threats and opportunities 4. Come up with appropriate safeguards at the individual and organizational level 5. Develop a skill set to deal with the ethical challenges and opportunities in this area 38

40 Discussion Your views on three situations #1 Alice is a real leader in internal audit, so she is asked to take on a leadership role in HR #2 Mandeep works in finance but is asked by colleagues in sales for help in preparing estimates & interacting with customers #3 Howard works in a small enterprise where he handles finance and multiple non-accounting tasks 39

41 Questions 40