Regulators had better get ready for partisan politicisation
Christmas may now be an all too distant memory, however, as set out in a previous blog, On the first day of Christmas my client gave to me…, it’s a time when millions of gifts are exchanged and often an opportunity for clients to show their appreciation for your hard work throughout the year. It’s perfectly reasonable to accept a gift, however you must first stop to consider whether the gift could be seen as inducement, and therefore likely to impair your independence as a professional accountant.
The 1 January 2020 saw regulators across the accounting sector introduce their new Code of Ethics, which has been adopted from the International Code of Ethics for Professional Accountants, issued by the International Ethics Standards Board for Accountants (IESBA) in April 2018.
Included within these new standards are revised provisions relating to the offering and accepting of inducements (including gifts, hospitality and entertainment), which, according to CIMA, is to “ensure finance professionals exhibit the highest standards of ethical behaviour at all times.”
The definition of inducement has been clarified as being:
An object, situation, or action that is used as a means to influence another individual’s behaviour, but not necessarily with the intent to improperly influence that individual’s behaviour.
Inducements can range from minor acts of hospitality between business colleagues (for professional accountants in business), or between professional accountants and existing or prospective clients (for professional accountants in public practice), to acts that result in non-compliance with laws and regulations. An inducement can take many different forms, for example:
• Political or charitable donations
• Appeals to friendship and loyalty
• Employment or other commercial opportunities
• Preferential treatment, rights or privileges
Furthermore, the framework provides enhanced guidance on the offering and accepting of inducements by professional accountants’ immediate or close family members.
The ACCA’s new Code of Ethics sets out the principles for professional accountants in business and in public practice. The Code states that “Offering or accepting inducements might create a self-interest, familiarity or intimidation threat to compliance with the fundamental principles, particularly the principles of integrity, objectivity and professional behaviour”.
The ACCA advises that, as a rule of thumb, accountants must consider the difference between a gift and what constitutes bribery. If you no longer act for the client, then a modest gift, which is not of high value, to show their gratitude is acceptable. However, issues arise when you are given a gift which is disproportionate to the work carried out or is high in value. Gifts which fall into this category could be perceived as intent to improperly influence behaviour and should be returned.
The ICAEW warns its members against finding themselves in a situation that may create a familiarity threat and advises members to recognise “circumstances or relationships such as familiarity with the client, that might compromise the accountant’s professional or business judgment”.
Last year, the ICAEW’s Disciplinary Committee found that a member was in breach of the Code of Ethics in that he inappropriately accepted gifts from his client totalling £89,000 over the course of five years. The gifts made to the member were only discovered after the client had passed away. The Disciplinary Committee found that the member was liable to disciplinary action under Disciplinary Bye-law 4.1a which states:
4.1 ‘A member, or provisional member, shall be liable to disciplinary action under these byelaws in any of the following cases, whether or not he was a member or provisional member at the time of the occurrence giving rise to that liability:
a) if in the course of carrying out professional work or otherwise he has committed any act or default likely to bring discredit on himself, the Institute or the profession of accountancy.’
The member was given a severe reprimand and a fine of £4,000. He was also made to pay costs of £19,314. In their decision, the Disciplinary Committee said:
“In acting in the way in which he had, the defendant had breached the position of trust that he found himself in and his independence and objectivity had fallen well below the standard expected of someone in his position.”
His actions would likewise be in breach of the revised Code of Ethics.
In December, CIMA published a practical guide on gifts and hospitality. If you find yourself in a position where you receive a gift that you feel is attempting to influence your business decisions, CIMA recommends first checking your company’s internal policy on gifts to see what it says you should do. The policy may include a monetary limit on gifts or a prohibition against accepting gifts or hospitality in certain circumstances.
If your company doesn’t have a policy, then you should consider CIMA’s (new) Code of Ethics. CIMA stresses that you must not accept anything which could be a threat to your integrity and objectivity; two of the Code’s fundamental principles. Under the principle of integrity, the Code says you must be “straightforward, honest and truthful in all professional and business relationships.”
ICAS’ revised Code contains new provisions for accepting inducements (including gifts and hospitality), and a new “intent test” to determine if inducements are made with the intent to improperly influence behaviour.
ICAS says that some inducements:
“…may not be prohibited by laws and regulations but may still create a threat to compliance with the fundamental principles. The new provisions in the Code prohibit any inducements, given or received, where there is, or perceived to be, “intent” to improperly influence behaviour:
The Code also provides guidance in circumstances where a professional accountant becomes aware of an immediate or close family member offering or receiving inducements from a party with whom the professional accountant has a business relationship. If there appears to be intent to improperly influence behaviour, they need to advise their family member not to offer or accept the inducement.
A key consideration is whether the inducement will improperly influence behaviour. If it does - or could - then it is not permitted under the Code.
The revised standards make it clear that maintaining your independence, integrity and objectivity is fundamental in acting in line with your professional obligations.
IESBA stresses that inducement is “considered as improperly influencing an individual’s behaviour if it causes the individual to act in an unethical manner”. It does not put a blanket ban on receiving gifts in the course of business, nor do the regulators mentioned above, but instead asks professional accountants to consider important factors such as the nature, frequency, value, timing and cumulative effect of an inducement to ensure it does not impair their judgement or behaviour.
If you are unsure on whether you can accept a gift, you should first consult your firm’s policy and your professional standards. It is far better to act with caution than to later have your integrity called into question.
Christina Orthodoxou is an associate in our Regulatory team. She specialises in the defence of a range of professionals in the legal and financial industries. She also has a growing practice in advising on sexual misconduct cases in the higher education sector.
Julie Matheson is a Partner in the Regulatory team, specialising in defending professionals in the financial and legal fields. She has particular expertise in defending accountants and accountancy firms in regulatory proceedings brought by the FRC, ICAEW and ACCA. She also regularly provides advice on FCA conduct issues, particularly under the Senior Managers and Certification Schemes.
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