2ND EDITION

ETHICS AND
GOVERNANCE
TUTOR MATERIAL
MODULE 1: ACCOUNTING AND SOCIETY

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EQUAL HEIGHT TO CPA AUSTRALIA’S
ETHICS AND
GOVERNANCE
MODULE 1: ACCOUNTING AND SOCIETY

© COPYRIGHT CPA AUSTRALIA UNLESS OTHERWISE INDICATED

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ETHICS AND GOVERNANCE: CONCEPT MAP

Source: CPA Australia 2016.

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COURSE MODULE OUTLINE

1. Accounting
and society

5. Corporate
2. Ethics
accountability

Ethics and
governance

4. 3.
Governance Governance
in practice concepts

Source: CPA Australia 2016.

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INTRODUCTION

This module examines:

• what it means to be a professional accountant;
• the expectations being a member of a profession places
on individuals;
• the self-regulatory nature of professions;
• the role of the accounting profession as a social force that effects
changes on organisations, people and societies; and
• challenges in the accounting profession that have damaged
its credibility.
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OBJECTIVES

After completing this module, you should be able to:

• describe the nature and attributes of a profession;
• explain the co-regulatory processes of the accounting profession;
• differentiate the roles, relationships and activities of accountants;
• evaluate the challenges faced by the accounting profession in
the global context; and
• explain the importance of soft and technical skills required
of accountants.
ETHICS AND
GOVERNANCE
MODULE 1: ACCOUNTING AND SOCIETY
PART A: ACCOUNTANTS AS MEMBERS OF
A PROFESSION

© COPYRIGHT CPA AUSTRALIA UNLESS OTHERWISE INDICATED

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PUBLIC INTEREST OR SELF-INTEREST?

• Efficient market economies depend on disclosure of accurate

financial information.
• The accounting profession is integral to ensuring people have
access to accurate information.
• The accountant needs to distinguish between information to be
disclosed in the public interest and any self-interest.
• The accounting profession will only retain its integrity and authority
by serving the wider public interest.
• Professional accountants serve the public interest by providing
objective, accurate, unbiased, expert and appropriate financial
and accounting-related advice.
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RESPONSIBLE DECISION-MAKING

• Framework includes governance, accountability and ethics.

• Decision-making must be within this framework.
• Balanced decisions are made at the centre of this figure, where
corporate accountability, governance and ethics interconnect.
• Corporations must remain vigilant.
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ENLIGHTENED SELF-INTEREST

• In a market economy, the economic self-interest of a profession

will be an important driver of behaviour.
• Self-interest should never outweigh the primary commitment
to the public interest.
• ‘Enlightened self-interest’: It is possible to be committed to the
public interest and possess a degree of self-interest.
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IDEALS OF ACCOUNTING ENTREPRENEURIALISM

AND PROFESSIONALISM
• It has been argued that professions never really had a public
interest or service ideal (Johnson 1972; Abbott 2014) or that the
service ideal has been abandoned for a more lucrative role as
‘partner in business’ (Saravanamuthu 2004).
• Carnegie and Napier (2010) identify the ‘four Es’: education,
ethics, expertise and entrepreneurship. Over-emphasising
entrepreneurship may lead to ‘de-professionalisation’
of accounting.
• Entrepreneurship may mean accountants place more
importance on increasing their personal wealth and influence
than on public service.
• Accountants are often in a position of power that can create an
‘ethics versus profits’ dilemma.
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WHAT IS A PROFESSION?

• A profession is defined in the Oxford Dictionary as an occupational area or

vocation that ‘involves prolonged training and a formal qualification’.
• Members of professions are expected to behave ethically and in the best
interests of society.
• The key attributes listed below provide valuable guidance in recognising
the existence of a profession:
− systematic body of theory and knowledge;
− extensive education process for its members;
− ideal of service to the community;
− high degree of autonomy and independence;
− code of ethics for its members;
− distinctive ethos or culture;
− application of professional judgment; and
− existence of a governing body.
Source: Based on Greenwood, E. 1957, ‘Attributes of a professional in social work,’ in S. Loeb (ed.) 1988, Professional Ethics in Accountancy, Wiley, Santa Barbara, California.
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WHAT IS A PROFESSIONAL?

• A person who has a significant level of training and a high level

of competence and skills in an area.
• A person who behaves in an ethical and appropriate manner and
applies their skill and judgment in areas of importance.
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PROFESSIONS: TRADITIONAL AND

‘MARKET CONTROL’ VIEW
Two contrasting views:
1. The traditional view sees the accounting profession as
demonstrating attributes that are focused on serving society.
This could be described as the ‘ideal’ view of the profession.
2. The market control view suggests that professional accountants
are less concerned with the broader public interest than with their
own careers. The profession, according to this view, has created
a ‘monopoly’ to ensure only certain people (members of the
profession) can work in this area.
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ATTRIBUTES OF THE
ACCOUNTING PROFESSION

High degree
of autonomy Code of
and Ethics
independence
Ideal of Distinctive
service to the ethos or
community culture

Extensive Application of
education professional
process judgment

Attributes
Body of of the Governing
theory and
accounting body
knowledge
profession

Source: Based on Greenwood, E. 1957, ‘Attributes of a professional in social work,’ in S. Loeb (ed.) 1988, Professional Ethics in Accountancy, Wiley, Santa Barbara, California.
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THE PROFESSION’S REGULATORY PROCESS 1

• The Accounting Professional and Ethical Standards Board (APESB)

is an independent body that sets the professional standards
for accountants.
• A high degree of autonomy is an important characteristic of
a profession, and this attribute has been challenged by the
regulators, with the removal from the profession of the powers to
set accounting and auditing standards.
• These powers are now in the hands of the Australian Accounting
Standards Board (AASB) and the Australian Auditing and Assurance
Standards Board (AUASB) respectively. These two boards in turn
report to the Australian Financial Reporting Council (FRC).
• Auditing standards have the force of law under the Corporations
Act 2001 (Cwlth).
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THE PROFESSION’S REGULATORY PROCESS 2

Source: CPA Australia 2016.

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THE QUALITY ASSURANCE PROCESS

Practice
reviews

Conformity Accounting firm

with standards regulation
APES 320 Quality
Control for Firms

• Leadership
responsibilities
• Ethical requirements
Quality • Acceptance and
Standard
assurance APES 320 continuance
setting
process • Human resources
• Engagement
performance
• Monitoring

Source: CPA Australia 2016.

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PROFESSIONAL DISCIPLINE

• Professional and ethical standards aim to ensure that members

work to the highest level of professionalism.
• Members often face personal, financial and other pressures that
threaten their integrity and test their judgment.
• No profession is free of unscrupulous members.
• Joining CPA Australia means committing to upholding the
reputation of the CPA designation by adhering to the obligations
spelt out in CPA Australia’s Constitution and By-Laws, the Code
of Professional Conduct and applicable regulations.
• Investigation and disciplinary procedures form an essential
adjunct to the Code of Professional Conduct.
ETHICS AND
GOVERNANCE
MODULE 1: ACCOUNTING AND SOCIETY
PART B: INTERACTION WITH SOCIETY
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ACCOUNTING ROLES,
ACTIVITIES AND RELATIONSHIPS
Accountants are found Work environment Examples
in an ever-increasing Public practice Public practitioner
number of roles and Big Four accounting firm
Second-tier accounting firm
relationships in society. Small partnerships and sole practitioners

Private or business Professional accountant in business

sector Large companies—privately held or publicly listed
Small and medium enterprises (SMEs)
Start-ups

Public sector Government departments

Public entities (e.g. hospitals)

Financial advice High-wealth individuals

Business organisations
Trusts and foundations

Not-for-profit sector Charities

Sporting and cultural associations

Source: CPA Australia 2015.


PUBLIC PRACTICE ACCOUNTING
Public practice types:
• Big Four accounting firms
• second-tier accounting firms
• small practices and sole
practitioners.
22
Public practice roles:
• assurance and audit
• financial management
• taxation services
• forensic accounting
• insolvency
• internal audit services
• business advising.
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PROFESSIONAL ACCOUNTANTS IN BUSINESS

Private practice roles: Private practice tasks:

• board member • creation of value

• finance director or chief financial officer • analysing and interpreting information
• financial accountant • strategic planning
• treasury accountant • developing appropriate
• risk manager measurement tools
• strategic management accountant • communicating financial reports
• internal auditor • communicating with stakeholders
• human resources accountant • accurate costing of products and services
• company secretary. • financial control and forecasting—
reduction of waste (efficiency)
• managing risk and providing assurance.

Source: Based on PAIB committee research (IFAC 2013) and The Roles and Domain of the Professional Accountant in Business,
Professional Accountants in Business Committee, p. 4, published by the International Federation of Accountants (IFAC) in 2005 and is used with permission of IFAC,
accessed October 2015, https://www.ifac.org/publications-resources/roles-and-domain-professional-accountant-business.
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ACCOUNTING IN SMEs

• Small- and medium-sized enterprises (SMEs) vary in size,

number of employees, direct ownership control and geographic
dispersion of resources.
• The accounting functions within an SME are broadly the same as
in a large business environment.
• The Professional Accountants in Business Committee (PAIB
Committee) of IFAC ‘provides leadership and guidance on
relevant issues pertaining to professional accountants in business
and the business environments in which they work’ (IFAC 2013).
• The PAIB Committee in 2005 developed an information paper
titled The Roles and Domain of the Professional Accountant in
Business.
• Accountants serve as financial advisers.
• Accountants serve as external advisers to SMEs.
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PUBLIC SECTOR AND NFPs

Public sector
• Includes a wide range of government and regulatory bodies.
• Governments and their agencies require economic, finance, accounting
and audit staff for their operations.
• Accounting roles are similar to those in the private and business sector.

Not for profits (NFPs)

• NFPs: legal or social entities formed for the purpose of producing
goods or services, whose status does not permit them to be a source
of income.
• Can vary in size from large charitable institutions to local sports clubs.
• As the complexity of tendering and accountability requirements grows in
this sector, so does the need for professionally qualified staff to
enhance efficiency and effectiveness.
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SOCIAL IMPACT OF ACCOUNTING

• Does accounting have a positive social impact?

• Can that impact be negative in some circumstances?
• Reporting of positive/negative financial results.
• Arguably, even perceptions about accounting can create
significant social impact—so communications regarding
accounting need to be professional and balanced.

Social impacts:
• impacts of higher levels of depreciation
• impacts of lower levels of depreciation.
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CREDIBILITY OF THE PROFESSION

UNDER CHALLENGE
• Accounting needs to be perceived
to provide a public service and Creative
contribute to effective governance accounting

of organisations, public and private.

• Technical actions and behaviours
as accountants are under scrutiny.
Issues
• When we fail to perform our work Financial
accounting
causing Poor audit
reduced quality
to an adequate standard and distortions
credibility
organisations experience trouble
and distress, the credibility of the
profession is called into question.
Lack of
auditor
independence

Source: CPA Australia 2016.

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CREDIBILITY OF THE PROFESSION

Auditors must FRC responsible

apply the Code for auditor
of Ethics independence

Accounting
Enhanced
standards are
regulation
backed by law

Restoring Adoption of
Establishment
of FRC credibility to international
standards
accounting

Source: CPA Australia 2016.

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CAPABILITY CONSIDERATIONS 1

Technical skills, knowledge and experience (TSKE)

Finance
Management
and financial
accounting
analysis

Relevant IT
Taxation and technical
communication

Technical
skills, Understanding
of regulations,
Financial knowledge law and
reporting and company
experience structures
(TSKE)

Source: CPA Australia 2016.

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CAPABILITY CONSIDERATIONS 2

Soft skills, knowledge and experience (SSKE)

Discuss
and debate
without hostility
Communicate
Be persuasive
effectively

Understand
Manage
complex
time and
and difficult
deadlines
issues

Soft skills
knowledge
Improve
Listen and capabilities
experience
(SSKE)
Source: CPA Australia 2016.
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TSKE AND SSKE: CAREER PERSPECTIVES

• Certified Practising Accountants (CPAs) are subject to formal

continuous professional development (CPD) learning requirements.
• CPA Australia recognises both TSKE and SSKE activities as
satisfying CPD requirements.
• TSKE are relatively more important in the early years of professional
accountants’ actual careers, but as time passes, and TSKE and
SSKE improve and as some CPAs move to partnership (and/or
senior management) level, SSKE becomes relatively more important.
• The CPA Career Guidance System identifies four skill areas:
1. technical skills
2. business skills
3. personal effectiveness skills
4. leadership skills.
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REVIEW

This module:
• explored what it means to be a professional accountant;
• considered the signs that professions are under challenge;
• appreciated our responsibility to ensure that society genuinely
benefits from our profession;
• identified that professional accounting capability extends beyond
the important tasks of preparing accounts and financial reporting;
• appreciated that accountants must be aware of professional
ethical responses in a variety of detailed circumstances; and
• discussed CPA Australia processes to ensure members meet the
required standards of professional conduct and the measures it
has to monitor and manage members’ conduct.