Accounting & Auditing | Business and Industry | Ethics | Legislative / Regulatory

New ethical standard for CPAs: Welcome guidance or regulatory overkill?

Ethical definition highlighted in green in the dictionary

If you’re looking for more ethical guidance, the International Ethics Standards Board for Accountants has you covered.

The IESBA has released a new standard that is designed to provide guidance to accountants who suspect that they have uncovered various corporate malfeasance, “from money laundering to environmental abuses,” the Wall Street Journal reports.

“The standard applies to all categories of professional accountants, including auditors, other professional accountants in public practice, and professional accountants in organizations, including those in businesses, government, education, and the not-for-profit sector,” the IESBA explains. “It addresses breaches of laws and regulations that deal with matters such as fraud, corruption and bribery, money laundering, tax payments, financial products and services, environmental protection, and public health and safety.”

“The new standard,” adds the Journal’s Richard Teitelbaum, “focuses on resolving potential conflicts of interest for internal and external accountants and auditors, who can feel bound by strict client confidentiality rules, even when they uncover wrongdoing.”

In an era of unprecedented change and complexity, the new rule might be a welcome addition to accountants around the globe who struggle to find what’s right when so much around them seems uncertain and in flux.

Still, according to Teitelbaum, there are plenty of folks here in the States who are questioning the need for this extra layer of regulation. Here's what he writes:

Some experts have doubts about the usefulness of the guidelines, at least in the U.S., where the Securities and Exchange Commission already takes accountants to task for failing to raise a red flag when they learn of regulatory infractions.

“If the SEC prosecutes, and it turns out the auditor knew, the SEC has the power to go after the accountant or auditor,” said Shivaram Rajgopal, a professor of accounting and auditing at Columbia Business School. “Maybe it might help in other countries” with less rigorous standards, he said.

Others wonder whether more ethics policies are necessary. “All of the professional accounting firms have codes of ethics,” said Cynthia Clark, director of the Harold Geneen Institute of Corporate Governance at Bentley University. For example, “if I violated the ethics code at KPMG, I would likely be fired,” she said.

Accountants need ethics codes given the conflicts inherent in the auditing process — which can pit their independence against their duty of confidentiality. But such codes aren’t the most important factor in resolving conflicts, said Hans Hoogervorst, chairman of the International Accounting Standards Board.

“I’ve always believed that a strong relationship between [a company’s] audit committee and the accountant, that should be the key to strengthening the independent role of the accountant,” he said.

Still, said Ms. Clark, “It’s hard to argue against more ethics guidelines.”

It’s hard to know where to go with this one. More ethical oversight sounds great … but how much is too much?

Wherever the answer lies, it’s clear that for accounting and finance pros, Dan Burrus’s “hard trend” of increasing regulation and oversight marches on.


Bill Sheridan