Introduction

Ethics, in its simplest form, is about distinguishing right from wrong. In the accounting profession, it goes beyond basic morality, defining the foundation of trust that governs business interactions, financial reporting, and corporate governance. Professional ethics serves as a crucial compass for accountants, ensuring transparency, integrity, and accountability. For South Africa, a country rife with corporate scandals and financial misconduct in recent years, ethical principles are more critical than ever in rebuilding public confidence in financial institutions.

The Importance of Ethics in Accountancy

In a profession where trust and transparency are paramount, the role of ethics cannot be overstated. Accountants are responsible for ensuring the accuracy of financial reporting, supporting corporate governance, and protecting stakeholders. However, ethical lapses can lead to disastrous outcomes, as seen in several South African fraud cases over the past decade.

One of the most notorious recent cases involves Jonathan Simon Blow, who was convicted of theft and fraud committed between July 3, 2020, and September 19, 2022. Blow’s actions included manipulating financial records and diverting funds, causing substantial losses estimated at R51million to his clients. His case serves as a reminder that unethical behaviour can lead to personal gain at the expense of the public and the profession’s reputation.

Accountants play a pivotal role in corporate governance, financial reporting, and ensuring the overall integrity of businesses. When ethical standards are compromised, the ramifications can be disastrous not only for the involved parties but also for the broader public that relies on accurate financial information for investments and decisions. The collapse of several high-profile South African companies over the past decade illustrates the importance of ethics in the profession.

For example, the 2017 Steinhoff scandal—one of the biggest corporate fraud cases in South Africa’s history highlighted the dangers of unethical financial practices. The multinational retail giant was involved in manipulating its financial statements, inflating profits, and concealing debt. This massive fraud led to billions in shareholder losses, drastically diminishing trust in South African corporate governance and the financial reporting system. The involvement of accountants in facilitating or turning a blind eye to such manipulation underscores the need for robust ethical standards in the profession.

Core Ethical Principles

Five core ethical principles guide accountants, both in South Africa and internationally:

• Integrity: Accountants must be honest in all professional dealings. The lack of transparency in cases like Steinhoff demonstrates the damage dishonesty can cause.

• Objectivity: Accountants should remain impartial and avoid conflicts of interest. This principle was tested in the case of VBS Mutual Bank. In 2018, the South African Reserve Bank uncovered that VBS’s executives, aided by external auditors, had engaged in fraudulent activities, siphoning off billions of rand. Had objectivity been maintained, the auditors might have raised alarms earlier.

• Professional Competence and Due Care: Accountants must ensure they stay updated on current regulations and maintain high professional standards. The lack of competence and care was evident in cases like the mismanagement of South African Airways’ financials, where poor oversight and failure to adhere to regulatory standards led to significant losses. Accountants must maintain up-to-date knowledge of regulations and standards, a principle that was ignored by many during the Covid-19 pandemic when funds were misappropriated on a massive scale.

For example, Lindelani Bert Gumede, a Durban-based bookkeeper, defrauded the Temporary Employer/Employee Relief Scheme (TERS) of R11 million during the Covid-19 pandemic. Gumede, one of 156 individuals investigated by the Hawks’ Fusion Centre, was sentenced to 135 years in prison for his role in misappropriating these funds. This case underscores the importance of professional competence and due care, especially in times of crisis when public funds are vulnerable.

• Confidentiality: Respecting client confidentiality is crucial, but it should never be a shield for unethical or illegal activities. For instance, whistleblowers who exposed fraud in both the VBS and Steinhoff cases had to navigate complex ethical waters to ensure they did not breach confidentiality while still exposing wrongdoings. . In many fraud cases, including Blow’s, breaches of confidentiality were part of the fraudulent activities.

• Professional Behaviours: Accountants must comply with all laws and regulations, as Gumede failed to do when he exploited the TERS program, diverting funds meant to support workers during the pandemic for his own benefit.

Global and local ethical standards

The International Federation of Accountants (IFAC) sets out global ethical standards, while CIBA aligns local practices with these global standards. CIBA enforces the code of conduct that compel its members to adhere to ethical principles. However, as seen in recent cases, regulatory frameworks are only as strong as their enforcement. When accountability slips, fraud becomes more prevalent, as demonstrated by several financial misreporting cases in the past decade.

Whistleblowing and Ethical Dilemmas

A significant ethical dilemma many accountants face is whistleblowing. Whistleblowers play a crucial role in exposing unethical practices within organisations, but they also risk severe personal and professional repercussions.

In South Africa, whistleblowers have been subject to brutal retaliation. The case of Babita Deokaran, a senior financial official in the Gauteng Health Department, is a stark reminder of the dangers faced by those who expose corruption. Deokaran was murdered in 2021 after flagging suspicious payments linked to a multimillion-rand tender fraud scheme. Her case raised serious concerns about the protection of whistleblowers and the ethical responsibilities of accountants and auditors in reporting irregularities.

For accountants, whistleblowing presents a dilemma: balancing confidentiality with the legal and ethical duty to report misconduct. The Protected Disclosures Act in South Africa provides some protection to whistleblowers, but the decision to come forward often involves complex ethical judgments.

Promoting ethical culture in organisations

Accountants must not only adhere to ethical principles themselves but also advocate for a culture of integrity within their organisations. Ethical leadership, transparency, and accountability should be embedded in a company’s core values, starting at the top. Training programs and ethical behaviour incentives can strengthen the ethical culture, while swift action should be taken when unethical behaviour is identified.

For example, the 2015 scandal involving the African Bank’s collapse highlighted the failure of leadership to foster an ethical environment. Poor governance, reckless lending practices, and insufficient regulatory oversight led to significant losses for investors. Had a stronger ethical culture been in place, the bank's collapse might have been averted.

To combat these challenges, organisations need to promote an ethical culture, starting with leadership. Ethical decision-making should be rewarded, and unethical behaviour should be addressed swiftly. In cases like Gumede’s, where the consequences were severe, a stronger ethical culture within the profession could have potentially prevented such misconduct.

Challenges and strategies for upholding ethics

Accountants often face pressure to compromise ethical standards, particularly in environments where short-term financial gains are prioritised over long-term integrity. As seen in both the Steinhoff and VBS scandals, external and internal pressures can lead accountants to make decisions that compromise their professional ethics.

Overcoming these challenges requires a strong ethical foundation, continuous professional development, and access to guidance from senior professionals or professional bodies. Developing a well-defined ethical decision-making framework can also help accountants navigate complex situations without compromising their integrity.

Conclusion

The South African business landscape has been marred by several financial scandals in the last decade, many of which involved accountants who failed to uphold ethical principles. By committing to professional ethics, accountants not only protect the integrity of financial reporting but also play a key role in fostering trust and accountability in the corporate world.

Ethics is not just a theoretical concept; it’s a practical necessity. Upholding ethical behaviour in every aspect of accountancy is vital to safeguarding public trust, ensuring corporate governance, and protecting stakeholders. In a world where financial misconduct can have far-reaching consequences, ethical accountants are the cornerstone of transparent and accountable business practices. As the cases of Steinhoff, VBS, Gumede and others remind us, the cost of ignoring ethical principles is far too high for both the profession and society at large.

Ethics in the accounting profession is about more than just following rules; it's about upholding the integrity of the financial system and protecting the public interest. Accountants are often trusted with sensitive financial information, and their actions or inactions can significantly impact businesses, governments, and society at large. In South Africa, where corruption and fraud have severely undermined public confidence in recent years, ethical standards are essential to restoring trust in the financial system.

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