By Robert J. Warth
CPAs’ high ethical standards are the foundation for their trust in the mind of the public. In order to maintain leadership in professional ethics, a rules-oriented approach is not enough. Education and training are essential for new professionals; measurement and monitoring are crucial for maintaining standards. Compliance is merely the beginning of focused ethical leadership. To investigate how the profession is addressing these ethical challenges, the author surveyed management at several public accounting firms.
The study consisted of field visits to 17 CPA firms, from the Big Five to local firms, meeting with management-level professionals with tenure and experience that would assure valid information and opinions about firm practices. The visits were conducted in a semistructured manner, using a questionnaire designed to elicit much more than a yes/no response. (See the Sidebar for sample questions.) Participants were told that the discussions were confidential and that only summarized, non-firm-specific information would be disclosed. Questions of clarification to initial comments were used to set the tone for the appropriate level of detail desired for the meetings.
With regard to the importance of ethics in the public accounting profession, the results were unanimous. Comments such as “essential and fundamental,” “hallmark of the profession,” “it’s why CPAs get good public opinion,” “important because clients expect it,” and others were common. Not one of the representatives discounted the importance of ethical behavior by CPAs.
Regarding the ethics of recruits and clients, there were some differences. Most respondents indicated little effort during recruiting, relying primarily on “judgment based on interviews,” “focus on character,” and “education system.” However, almost all firms address the ethics of clients, both current and potential, with a formal procedure of review that includes a checklist or questionnaire, interview, and background checks. Others have a less formal, although still required, procedure. Several firms reported backing away from an existing client or refusing to accept a prospective client for ethical reasons.
In the area of ethics education and training, all firms except one said they rely primarily on colleges to cover the ethics and ethical behavior expected in the profession. However, none of the firms attempt to verify the coverage of such topics in the curriculum of the schools from which they recruit new hires. One firm mentioned that it has a representative on the advisory board of the college from which it does its primary recruiting which does review overall curriculum. The firms’ in-house training programs do not include specific coverage of ethics topics, except for two firms (one of which indicated that the topic is included in sessions “for top-level professionals only”). Only one firm indicated the use of outside training programs on ethics, where warranted for certain individuals.
In only one case could a firm representative recall any discussion of ethics beyond the accounting societies’ rules of conduct. Nevertheless, when asked if they ever discuss client-related ethical issues with staff, several participants indicated the common practice of referring to a client situation when discussing ethical matters with staff.
With respect to the monitoring of staff compliance with ethical standards (both the profession’s and the firm’s), almost all firms require an annual sign-off by staff, the content of which varies greatly among firms. Some merely ask about direct investment in clients by staff. Other sign-offs cover much more, including any disagreements encountered with clients during the year. In one firm, the managing partner reviews all correspondence with clients, looking specifically for disagreements, pressures, or other matters related to ethical issues.
Most firms reported having a plan or program that provides staff easy access to firm management to discuss any issue that makes them feel uncomfortable. This is accomplished in various ways, including mentoring programs, formal open-door policies, and close relationships. All respondents felt compelled to follow up on issues presented by staff. One member said that his firm felt that it “has an obligation to the individual and the profession to properly follow up on any issue raised by any staff member involving ethical issues.”
The firms were reluctant to discuss examples of ethical issues they have faced, involving either staff or clients. The few provided included pressures from clients in tax matters, sexual harassment situations, independence, unpaid fees, and nonpayment of payroll taxes and withholdings. Most of the examples cited were very clear situations involving broken rules. Five of the firms indicated that staff, and in one case a partner, had been relieved of duties because of ethical improprieties.
At the conclusion of the meetings, each firm representative was asked for any final comments or observations about the issue. Unsurprisingly, every participant thought that his or her firm acted ethically in all regards but that many of their competitors regularly failed to do so. Most of the comments related to the apparent pressure point of client fees and their use to attract and retain clients. In the majority of discussions, the comments centered upon misapplication of the rules of conduct. There was little reference to general ethical conduct, but much about adhering to the rules.
While this study was not exhaustive and no attempt was made to statistically validate the findings, some rather clear conclusions do seem appropriate. Consideration of the following initiatives should assist in improving the ethical climate in the CPA profession:
Better planning of the structure of education and training.
Improvements in the measure of compliance.
Change in emphasis of ethics training and discussions.
As important as the issue of ethics and ethical behavior is to the profession, it appears that there is a lack of focus in dealing with the issue. The application of some or all of the above recommendations would be a step in the right direction to address the deficiencies.
James L. Craig Jr., CPA
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