When KPMG resigned as the Guptas’ auditor in 2015, it was hailed as brave and righteous. Two years later, when the extent of the Guptas’ involvement in state capture became better known, KPMG was vilified. Why had it not acted sooner? Why did it withhold crucial information from the regulators and the public?
Book your place at the Ethics, Independence and NOCLAR webinar on 7 May 2019 here.
Auditors, after all, are supposed to act in the public interest. These were the sorts of questions that were being asked of KPMG, and rightly so.
Here was a case of walking away from a client when many believe KPMG should have remained as auditor, blown the whistle, and acted timeously to stop the rot from spreading.
This is the ethical standard now embedded into Noclar, or the Non-Compliance with Laws and Regulations, which forms the bedrock of ethical standards for the accounting profession worldwide.
Caryn Maitland, technical consultant to the SA Accounting Academy, says Noclar is clear that turning a blind eye to wrongdoing is no longer acceptable: “The problem you have is that the client who is found to be doing wrong is also the one paying your fees as auditor. That creates a conflict. Many auditors therefore resign, leaving it to the next auditor to inherit the problem.”
Maitland adds that if an auditor decides to resign from an client engagement, there are other steps that must be considered first. “Remember that the auditor and all professional accountants must first act in the public interest. So if they choose to resign from a client, they may have to inform the regulator why they have decided to take that step, and also inform in the incoming auditor. They cannot simply walk away and leave the mess to others to clean up.”
How Pope Francis got involved in the accounting profession
Noclar was first conceived after Pope Francis addressed the World Congress of Accountants in 2014.
It was this comment from Pope Francis that motivated the assembled accountants to take action: “In this context there is a stronger temptation to defend one’s interest without concern for the common good, without paying much heed to justice and legality. For this reason everyone, especially those who practise a profession which deals with the proper functioning of a country’s economic life, is asked to play a positive, constructive role in performing their daily work, knowing that behind every file, there is a story, there are faces. This task which, as we have said, requires everyone’s cooperation. The Christian professional draws every day from prayer and from the Word of God the strength, above all, to do his duty well, with competence and wisdom; and then to ‘go beyond’, which means to go to meet the person in difficulty; to exercise that creativity which enables one to find solutions to an impasse; to invoke reasons of human dignity in facing the rigidity of bureaucracy.”
The result was Noclar, placing public trust, ethics and integrity at the heart of the accounting profession.
The problem is, says Maitland, is that these terms mean different things to different people, and even the law has difficulty in defining them. “Integrity is a matter of practicing what you preach so that the people you engage with can trust you and rely on you.”
Never before in the history of the SA accounting profession has the subject of ethics and integrity been more vital. Still, confusion reigns as to where the accountants’ ethical boundaries end.
For example, if your client is about to sign a deal with the Guptas (or an equivalent type firm), should the accountant make know the dangers to reputation and other commercial interests? Strictly speaking, yes. To get involved with a dodgy partner could ultimately ruin the company, resulting in loss of capital for the shareholders and loss of jobs for the workers.
SA Accounting Academy is hosting a webinar with Caryn Maitland CA (SA) to go over these issues, providing a workable framework for the implementation of Noclar, and explaining why it is important for professional accounting organisations to enforce concepts of ethics and integrity and revaluate them every year.
Integrity and objectivity are two of the cornerstones of the accountancy profession that should constantly be evaluated considering today’s evolving business environment and as corporate and government scandal continue to climb out of the woodwork.
Maitland will provide case studies drawn from real-life situations involving accountants in business. These real-world examples deal with management integrity, financial reporting and disclosure issues, financial fraud, corporate crises, and the accountant’s professional responsibility towards their client and the general public.
Looking at research on why good people sometimes do bad things and the effect a number-crunching culture can have on one’s view of ethics, he will then deal with how the profession seeks to keep professional accountants off the ethical slippery slope, by re-examining the fundamental principles contained in the accountants’ Code of Professional Conduct. Guidance will be given as to how professional accountants can reinforce their prevention focus to minimise the chance of ethical transgressions.
- Dissect the ethical standards and considerations in terms of a professional code of conduct, international norms and legislative prescription are critical to local accountants in both the private and public sector
- Discuss new and revised rules proposed and adopted by local professional bodies like the South African Institute of Business accountants (SAIBA) and international intermediaries like the International Federation of Accountants (IFAC)
- Incorporate and apply ethical standards and considerations to real-life industry situations
- Recognise the responsibility of professional organisations to educate its membership and enforce rules related to firm composition, duties, and conduct
- Noclar and IFACs Code of Professional Conduct and the general application thereof (fundamental principles, threats, safeguards)
- Special ethical issues in select areas: revenue recognition, materiality, permitted services, client confidentiality, and independence; and how to apply the conceptual framework approach to address an ethical matter
- Apply the ethics rules applicable to due care and competency
- Conflicts of Interest and independence rules.
Book the webinar here.