Should business leaders be held to the same standard of integrity as the professional accountants who advise them?

19 May 2021

The ACCA recently published an extensive and extremely interesting report on ‘Gen Z’ and the future of accountancy, which discussed results from its global survey of over 9,000 young professional accountants (including students) aged between 18-25 years, and incorporating feedback from employer roundtables. While the bulk of the report focuses on research findings concerning the career expectations of young people within the profession, we found one discrete finding particularly interesting relating to respondents’ perceptions of businesses in general. More specifically, only 41% of respondents felt that business leaders acted with integrity.

This prompted us to consider this issue deeper, which led us to ask ourselves two questions. Firstly, when considering business leaders’ integrity, do young professional accountants apply the same standard and definition of ‘integrity’ that they themselves are held to account by their own professional and regulatory bodies? Secondly, should business leaders be held to the same standard of integrity as the professional accountants who advise them?

This second question in particular is relevant bearing in mind the BEIS open consultation on the government's proposed reforms to audit and corporate governance, which includes a specific proposal to extend the accountability of directors of Public Interest Entities (PIEs) to act with integrity when carrying out their corporate reporting and audit duties.

We extrapolate these issues below by first recapping the definition of, and the requirement to act with ‘integrity’ as it applies to all professional accountants, and then considering the implications of the BEIS reforms in relation to holding business leaders to account by a similar standard.

Professional accountants and the duty to act with integrity

In professional ethics, the duty to act with integrity is perhaps as old as ethics itself, yet despite it being a fundamental behavioural standard which spans across all professions, integrity is not easily definable in most professional spheres. One simply needs to look to the case law to note the challenges that the Courts have encountered over the years in defining integrity, although the leading Court of Appeal case of Wingate and Evans v SRA; SRA v Malins [2018] EWCA Civ 366 offers some clarity, defining integrity as follows:

In professional codes of conduct, the term 'integrity' is useful shorthand to express the higher standards which society expects from professional persons and which the professions expect from their own members …The underlying rationale is that the professions have a privileged and trusted role in society. In return they are required to live up to their own professional standards … The duty to act with integrity applies not only to what professional persons say, but also to what they do …”
[paragraphs 97-101].

That being said, unlike many other professions, the concept of integrity is specifically defined within the regulatory regime governing professional accountants, featuring as the first Fundamental Principle in the International Code of Ethics for Professional Accountants set by the International Ethics Standards Board for Accountants (IESBA). This Code, adopted by the Financial Reporting Council (FRC) and the other UK accountancy regulators, defines integrity as an obligation on all professional accountants

to be straightforward and honest in all professional and business relationships”. It also implies “fair dealing and truthfulness”.

The FRC expands on this definition in its Revised Ethical Standard 2019, stating integrity to include

being trustworthy, straightforward, honest, fair and candid; complying with the spirit as well as the letter of applicable ethical principles, laws and regulations; behaving so as to maintain the public’s trust in the auditing profession; and respecting confidentiality except where disclosure is in the public interest or is required to adhere to the legal and professional responsibilities
[paragraph I21].

The ethical requirement to act with integrity is therefore engrained into professional accountants through their training and indoctrination into the profession, and they are expected to carry this high standard with them in their work beyond attainment of their professional qualification. It follows that maintaining this deep-rooted ethical principle may well raise the standards they would expect others in their professional dealings to exhibit.

Whether or not this is so is of course beyond the scope of this blog; however it does lead us to our second question, whether regardless of professional accountants’ perceptions, or even expectations, that business leaders and directors should act with the same high standard of integrity, should they be held to the same regulatory requirement to do so?

Extending the duty of directors to include an ethical requirement to act with integrity

The BEIS proposes to extend the duties of directors of PIEs to include a requirement to act with integrity, which is outlined in section 5 of its consultation “Restoring trust in audit and corporate governance”. As a reminder, this government consultation is open for responses until 8 July 2021.

Company directors are currently required to meet certain general duties under sections 173 to 175 of the Companies Act 2006. These statutory duties include the duty to exercise independent judgement, to exercise reasonable care, skill and diligence, and to avoid conflicts of interest. The BEIS proposals suggest the Government is considering whether directors of PIEs ought to additionally be required to meet certain behavioural or ethical standards, akin to professional persons such as professional accountants.

With a particular focus on directors’ activities in corporate reporting and audit, the proposals suggest a new ethical requirement for directors to act with honesty and integrity, which it states

might allow the regulator [ARGA] to take action against a director who, for example, failed to act with honesty and integrity when deciding what information should be revealed to the auditor
[section 5.1.24].

Currently, criminal proceedings may be brought against directors in serious cases of dishonest conduct, but directors are not accountable to a regulatory regime, nor are they subject to potential regulatory enforcement action arising from breaches of integrity.

If this proposal to extend ARGA’s investigation and enforcement powers to cover the ethical behaviours of directors of PIEs is passed, this will mean that these directors and business leaders will be subject to regulatory investigation and, if they are found to have acted without integrity, may be liable to a graduated range of civil sanctions imposed by the regulator. While this proposal is limited to only apply to directors of PIEs, the proposed widening of the definition of a PIE as set out in section 1.3 of the proposals means that more companies will fall within the catchment of this new ethical requirement, if it is passed through.

Considering the practical implications of this, leaving aside the greater duties that will be placed upon directors of PIEs, the question arises as to how ARGA will define ‘integrity’ when it comes to deciding whether a director has breached the standard. The proposal is unclear whether ARGA will apply the same regulatory regime to PIE directors as it does to professional accountants, but if it does, one assumes a definition of integrity similar to that provided in the FRC’s Revised Ethical Standard 2019, namely a behavioural standard on directors “being trustworthy, straightforward, honest, fair and candid; complying with the spirit as well as the letter of applicable ethical principles, laws and regulations; behaving so as to maintain the public’s trust in the auditing profession; and respecting confidentiality except where disclosure is in the public interest or is required to adhere to the legal and professional responsibilities”.

Concluding remarks

The latest ACCA report suggests that only 41% of young professional accountants believe that business leaders act with integrity. This perception may be driven by the events of recent large scale business collapses, which also clearly underpin the rationale for the BEIS’ extensive reform proposals. The specific proposal to extend the duties of PIE directors to act with honesty and integrity, and to make this duty subject to regulatory scrutiny and enforcement action, represents a significant departure from the current position. If adopted, it will mean that in addition to the statutory duties imposed on directors by virtue of the Companies Act 2006, PIE directors will also fall under a regulatory regime with possible civil sanctions imposed for breaches of new behavioural standards. What this will look like is unclear, and much will depend on whether the new regulator, ARGA, applies the same definition of ‘integrity’ and higher standards of behaviour this requires when considering breaches of the standard by directors as it does for professional accountants. We consider this likely to be the case, if the provision is passed through, in which case a consideration for ARGA will be how it will effectively engage with this new population of individuals it regulates, to support them in adopting these new standards.


Should you have any queries regarding the issues raised in this blog please contact Julie Matheson, Lucinda Soon or any member of our Regulatory team.



Julie Matheson is a Partner in the Regulatory team, specialising in advising accountants and accountancy firms on regulatory issues, particularly in relation to proceedings brought by the FRC, ICAEW and ACCA.  She also advises senior public finance officials on their roles and responsibilities under the Local Government Act 1972.

Lucinda Soon is a professional support lawyer in the Regulatory team, and is responsible for knowledge management and practice development.  Her work focuses on leveraging the team’s collective knowledge and expertise, ensuring that know-how and current and emerging regulatory developments are identified, evaluated, synthesised, and shared. She is particularly experienced in the adoption of technology to aid the delivery of these outcomes.


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