Should Corporate Accountants Spill the Beans?

An ethics board wants accountants to report suspected fraud by their employers.
Kathy HoffelderOctober 8, 2012

Proposed changes to a global ethics code for accountants would require auditors, management accountants, and CFOs to report suspected fraud or illegal acts by their employer, either internally or externally, depending on their role.

As a matter of principle, corporate accountants have always maintained a degree of confidentiality about companies’ finances, and there has never been any guidance concerning when that confidentiality should be breached. But the International Ethics Standards Board for Accountants (IESBA) is suggesting new steps that accountants should take to disclose information about suspected illegal acts to management, the board, or external sources.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

The IESBA’s exposure draft, released in August, distinguishes between auditors and corporate and other professional accountants. If the suspected illegal act affects financial reporting or is within the expertise of the auditor, the auditor would be required to discuss the issue with management and the audit committee. If the response within the company is, in the auditor’s judgment, “not appropriate” and “of such consequence that disclosure would be in the public interest,” the auditor must disclose the suspected illegalities to “appropriate” external authorities, according to the proposal.

For other professional accountants, including those who work for corporations, the approach would be similar except for one thing: staff and other accountants serving the company would be obliged to discuss illegal acts only with management and the audit committee. “For an accountant in business to have a requirement to always report [externally] might be going a little far,” comments an IESBA official who preferred to remain anonymous.

The added responsibility for accountants is not expected to lessen the role CFOs must play in ensuring that their company’s financial reporting is accurate. Under the proposal, if a staff accountant informs the finance chief of possible illegality, the CFO must pass the information along to other senior executives and the board audit committee. “All professional accountants have a part to play here if they encounter a suspected illegal act,” says the IESBA official.

Since more companies are doing business in countries where bribery is fairly commonplace, the proposed obligations for accountants could become as much of a concern for companies as the Foreign Corrupt Practices Act, says Ian Ball, chief executive of the International Federation of Accountants, whose organization uses the IESBA code as a foundation for other codes of ethics.

Market participants have until December 15 to comment on the IESBA exposure draft revisions.

4 Powerful Communication Strategies for Your Next Board Meeting