Professionals: are you clear on your ethical responsibilities?

13 February 2015

Most professionals, regardless of the sector in which they operate, will be aware that they have to meet certain professional requirements, as set down by their regulatory body.  The majority of professional regulators, in addition to technical standards, prescribe ethical standards to which their members must adhere at all times.  Some standards are principles based; others are more prescriptive.  Regardless of the nature of the ethical code, it is important that the principles within the code are clear and that the regulated professional understands the standards of ethics they are to meet. 

Many of the ethical standards set down will be reasonably self-explanatory: honesty and integrity are fundamental in most ethical schemes; there is case law to assist in the interpretation of those standards in less clear cut cases.  Other regular ethical considerations may include transparency, competency, objectivity and fairness; again, these principles are reasonably easy to interpret: the professional therefore knows how he should act to adhere to those standards. 

The issue of the interpretation of ethical standards has arisen in a recent Financial Reporting Council (FRC) appeal, brought by Deloitte and Touche and its former partner, Maghsoud Einollahi (“the Appellants”) under the FRC’s Accountancy Scheme.  In a finding before the FRC’s Disciplinary Tribunal Panel, the Appellants had been found to have committed misconduct, with relatively severe sanctions imposed.  Their appeal was based on a number of grounds, one of which was the proposition that the Disciplinary Tribunal Panel had erred in finding that the Appellants had failed to take into account the public interest before accepting or continuing their engagement in corporate transactions relating to MG Rover and its associated companies in 2001 and 2002, in breach of the Institute of Chartered Accountants of England and Wales’ (ICAEW) ethical guidance.

The Appeal Tribunal considered carefully the question of how the public interest is to be taken into account by an accountant acting or considering whether to act in a corporate finance matter.  In particular, the Appeal Tribunal considered how the ICAEW’s ethical requirement to take into account the public interest added to the basic principles that an accountant, like any member of a profession, should act competently, with integrity and honesty, and should make their professional judgments with objectivity (defined as ‘Fundamental Principles’ in the ICAEW’s ethical guidance).

The Appeal Tribunal had regard to several Statements and Fundamental Principles imposed by the ICAEW, as codified in its Members’ Handbook in place at the time.  The Members’ Handbook for 2000 includes a Guide to Professional Ethics, in which there are a number of references to ‘the public interest’. In summary, under the heading “Safeguarding Objectivity”, the Guide at Statement 1.201 provides that an accountant should consider the public interest when deciding whether to accept any assignment or appointment.  The Appeal Tribunal observed that Statement 1.201 does not provide a0 explanation as to how the public interest should bear on the decision of an accountant to accept an assignment or appointment in his or her work. 

Statement 1.220 of the Guide in the 2000 Handbook gives a definition of what the ‘public interest’ is deemed to be.  The Appeal Tribunal opined that the definition within Statement 1.220 appeared to equate the requirements of objectivity and integrity with the public interest responsibility, as opposed to distinguishing the differing considerations. 

The Appeal Tribunal then considered the 2001 Guide to Professional Ethics, revised with effect from August 2001, which added to the Statements contained within the Guide in the 2000 Handbook and provided a reasonably lengthy further definition of the ‘public interest’.  As part of the definition, it is stated that “Members should therefore take into consideration the public interest and reasonable and informed public perception in deciding whether to accept or continue with an engagement or appointment, bearing in mind that the level of the public interest will be greater in larger entities and entities which are in the public eye.”  Although the Appeal Tribunal accepted and endorsed the Statements, it opined that they do not assist in giving guidance as to how the public interest is to be taken into account by an accountant, i.e. how his decision might be affected by the public interest, beyond the requirements for him to act with integrity, honesty, objectivity and competence (standards also set down by the ICAEW’s Fundamental Principles).  In particular, the Appeal Tribunal opined that the Fundamental Principles apply to all work by chartered accountants, regardless of the size of the client or whether the company is in the public eye.

The Appeal Tribunal drew a comparison with a solicitor undertaking work for a foreign client in relation to its proposed takeover bid for a large UK manufacturer.  The Tribunal assumed, in the example, that there was a risk that if the takeover was successful the foreign predator company would close down the UK factories, which could be construed to be against the public interest.  In that situation, a UK lawyer appointed by the predator company would be free to accept the instruction provided the proposed takeover and the work involved were lawful, that the proposed instruction involved no dishonesty or want of integrity and that they were competent to carry out the engagement.  However, the ICAEW Guide to Professional Ethics requires accountants take account of the public interest before accepting the engagement. The Appeal Tribunal questioned how, and to what extent, the public interest should be taken into account.  It was the Tribunal’s view that that question cannot be answered based upon the ICAEW’s Guide to Professional Ethics as it is “vague and unhelpful”.  The Appeal Tribunal concluded that the requirements in the Guide as to the public interest could not alone form the basis of any charge that an accountant has been guilty of misconduct; the Panel therefore allowed the appeal in relation to charges stating that the Appellants had acted contrary to the public interest (amongst other heads of charge).

The ICAEW has acknowledged the decision of the Appeal Tribunal and has indicated that it needs time to consider the decision prior to coming to any firm conclusions.  It can only be assumed that the ICAEW will seek to review its current ethical guidelines, to avoid any future ambiguity and to make its members clear on their professional responsibilities.

This decision provides a salient lesson to both regulators and professionals who are regulated.  Regulators much ensure that standards to which professionals must adhere are clear and consistent; otherwise, professionals may not understand them and may inadvertently fall foul of the standards. 

However, the responsibility in relation to ethical guidelines does not only lie with regulators:  professionals should make themselves fully aware of the professional standards under which they operate.  If they have any concerns about whether an instruction may cause them to deviate from their professional obligations, they should seek advice from their regulator.  Doing so may avoid any future repercussions or disciplinary proceedings.

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