THE issues of ethics and corporate governance have emerged as hot topics ever since questionable behaviour across the financial sector plunged wide swathes of the global economy into a deep recession.
In the five years since the great financial crisis saw banks collapse and many investors lose their money, the corporate world has engaged in a bout of hand-wringing regarding ethical practices. This goes doubly for the accountancy profession, which traditionally has been seen as guardians of good governance across the business world.
From auditor independence matters such as audit firm rotation and provision of non-assurance services, to money laundering, accountants have regularly dealt with challenging ethical issues.
"Professional accountants have always and continue to be seen as people who command a high degree of trust. The vast majority, because of our DNA and what we do, upholds high ethical standards. That said, there will always be black sheep," said Kwok Wui San, interim chair, International Ethics Standards Board for Accountants (IESBA), and partner, PwC Singapore.
He added that the ethical principles for the accounting profession are unique, as practitioners must be ethical in both fact and perception. "Perception is paramount. No matter how ethical we are, if people do not perceive us as ethical, we will lose their trust. A big challenge internationally is making sure we do not do things that erode that trust we enjoy."
Dealing with perception also means that ethical ideals change over time with shifting expectations. Mr Kwok noted that many places - including those in the region such as China and Hong Kong - have banned key audit partners of listed companies from being remunerated for successes in selling services to their audit clients. He said that Singapore has proposed to do so this year.
A question of personal values
So how does an organisation foster a culture of transparency and ethical behaviour among its employees?
According to Gerard Ee, the president of the Institute of Singapore Chartered Accountants (ISCA), it is an individual's personal values that will most determine whether he or she does the right thing in the workplace.
"Ethics comes from personal values; either you have it as part of your value system and rank it very highly, or you don't. In every group there will be people who maintain high personal ethical standards and others who are lacking," said Mr Ee, who also holds the chairmanship of Changi General Hospital and SIM University (UniSIM) Board of Trustees. He is also the chancellor of UniSIM and board member of the Singapore Accountancy Commission.
That said, there are some things business leaders - whether a CEO or a partner in an accounting firm - can do to encourage their staff to make ethical decisions, and it has to be led from the top.
Said Mr Ee: "It must be demonstrated by top management that ethical behaviour is important. You need to celebrate such practices so that when you see an employee demonstrate the highest ethical standards and it is rewarded, you recognise that management takes this issue seriously."
Within the audit profession, Barry Epstein, a United States-based accounting expert and author, said that there is a direct link between senior management's "tone" regarding good internal control and the reasons why audits fail to identify risks that can lead to fraud and even bankruptcy.
"In short, shoddy work should never be tolerated, whatever the economic consequences might be, and those who perpetrate substandard audit procedures, including inadequate supervision, have to be dealt with harshly and quickly, if the correct tone at the top is to be established and maintained," said Dr Epstein, who is a litigation consultant with over 40 years of experience. He assists international corporations, financial analysts and professional investors in interpreting financial statements and reports prepared in accordance with International Financial Reporting Standards (IFRS).
He noted that the management of public accounting firms need to create the proper atmosphere where staff members understand that doing the correct audit is paramount, regardless of budgetary over-runs or the potential for lower firm profits.
This is likely to result in fewer incidences of "corner-cutting" behaviour whereby audit procedures are truncated or omitted, sufficient evidence is not obtained and meaningfully reviewed, and audit opinions are issued without being fully supported by actual evidence.
Mr Kwok said that removing situations that create opportunities for unethical behaviour can also be helpful. He advised firms to grow a well-diversified base of clients and revenue streams. "When it is not your rice bowl, there will be less pressure to do the wrong thing when pushed by any client," he noted.
Professional bodies can also play their part by providing education and other forms of guidance to practitioners. After speaking to regulators in different countries, Mr Kwok realised that many wanted their accountants to do more from the lessons they have learnt.
For instance, he said that IESBA is looking at introducing a controversial requirement for accountants in organisations to whistle-blow suspected illegal acts to senior management and auditors.
"Accountants such as CFOs can face pressures to do the wrong thing, such as manipulating profits. We are looking at more guidance to help those facing challenges. This includes clarifying the fact that even if an action is legal but unethical, it is wrong," he said.
He noted that Hong Kong's Independent Commission Against Corruption has prevention and education programmes that include collaboration with the territory's accounting profession. The IESBA, he revealed, will also be commencing a project to address bribery and facilitation payments soon.
Room for improvement
Despite greater focus on the issue in recent years, Mr Ee believes Singapore's business scene has much room for improvement in the areas of ethics and corporate governance.
"The common tone here is basically that if I haven't broken any laws, what's wrong with that? That to me is an indication that people here are not always mindful of the subject of ethics. In Singapore, things are still very transactional," he said.
While the lack of ethics within an organisation may not adversely impact its bottom line, it may affect the reputation of the business and ultimately its ability to attract talent over the longer term.
"You can still end up profitable in the short term without being ethical and this is where you are purely bottom-line driven, but will your employees feel proud of being part of your organisation? If your value system is purely transactional, people will continue to be loyal if they feel rewarded and not because they believe in the organisation's core values," said Mr Ee.
This has become especially important with the younger set of workers now entering the workforce, he added. This group is seeking fulfilment in their careers beyond just monetary rewards, and this includes working for companies that share their own personal values.
However, as inculcating the values that result in ethical behaviour can only take place in the education system, it might take a generation or two before we can expect any significant boost in the level of ethics in Singapore's corporate scene.
Mr Ee added: "When more individuals carry the right personal values, and it is seen within an organisation, then you will find that it will be practised consistently."