Host
Jag Dhaliwal
Guests
- Peter van Veen, Director, Corporate Governance and Stewardship, ICAEW
- Aydin Bolton, Senior Associate, Banking and Capital Markets, PwC
Producer
Ed Adams
Transcript
Jag Dhaliwal: Hello and welcome to ICAEW Student Insights. My name is Jag Dhaliwal, and this podcast is all about learning how the world of work is changing for finance professionals. Today, we’re exploring the role of chartered accountants in upholding ethical standards and ensuring firms practise good governance.
Peter van Veen: The standards are the same whether you are starting out as a junior accountant or whether you’re the chief financial officer.
Aydin Bolton: We’re faced every day with numerous challenges to our ethics.
JD: We know that accountants have an obligation to work in the public interest, as well as for employers and clients, but what does that look like in reality and what are the warning signs of poor governance? To answer those questions, I’m joined by Peter van Veen, ICAEW Director of Corporate Governance and Stewardship, and later today we’ll hear from Aydin Bolton, trainee accountant and audit associate at PWC. Hi, Peter, thanks for joining us today.
Peter van Veen: Thanks for inviting me.
JD: Tell me about your role at ICAEW. What does a job as Director of Corporate Governance and Stewardship involve?
PVV: My role sits within a team called Reputation and Influence, which sounds very Machiavellian, but it’s not. It basically means we are looking after policy – what we as an institute think government should or could be doing in terms of stronger regulation. We comment on quite a lot of the regulatory changes that the government’s thinking about, and we also provide thought leadership – so the latest thinking for members in terms of these topics around good governance, what does that look like, and what do we think members should be thinking about if they sit on boards, for example.
JD: So Peter, can you tell us some governance failings in business that are quite common?
PVV: Yes, I think there are quite a few things that we see – and there’s been a lot of talk also in the profession, of course – in terms of audit, corporate governance and the failures of audit and corporate governance. It’s somewhat difficult because, of course, every corporate failure is different in some ways. But the common factors often are that the board isn’t aware of what’s happening in the business, they haven’t seen it’s coming, they’ve been surprised by poor results or, worse, misleading information being presented as being factually correct. And they’ve gone to the market to say, you know, we’re making money, when actually they’re losing money and they’re struggling to stay alive. That tends to be at the core of a lot of corporate failures: the information flow isn’t there, and that representations have been made on behalf of the company that are incorrect – misleading investors and consumers – that the company is in a healthy state when it really isn’t.
JD: So I work in audit, and I’m just interested to know, how can that happen once you have external auditors in place?
PVV: Yes, I think it’s a challenge, because you start the relationship as an external auditor with a degree of trust with the company that you’re being brought in to present a fair picture of the company’s finances. Your job isn’t there to uncover fraud; that’s not the starting point. Now, clearly you might see things and say: “Hold on a minute. This doesn’t add up. I’d like to look into that a bit more.” And if you’re being pushed back, you’re not getting that information, then that’s a big red flag, saying: “The client’s no longer cooperating on a number of areas; we’re really worried about certain things and we’re not happy with that.” It’s sometimes surprising when you look at the audit profession, when you think, how could they have missed that? But if the client’s deliberately misleading you and presenting you with false information, it can be very hard to spot sometimes.
JD: You mentioned some red flags there, Peter. Can you touch on some more of those? Is there anything that our listeners should be watching out for?
PVV: Yes, absolutely. So our listeners might be both in the external audit role, but there might also be an internal audit or an internal finance role in a company, and the flags tend to be similar ones. One is, are there delays in the numbers being presented? Is there some kind of behind-the-scenes trying to make the numbers – massage the numbers – into a better picture than it should be? Is that a habit? Is that happening more often than not? That should be a red flag. So, late filings, late presentation of numbers – that’s always a red flag, especially in a tough market when margins are thin. And you’re thinking: “Well, OK, are they trying to bring forward sales? Are they trying to bring forward results and trying to make this year look better?” But then you’re already starting with a deficit in the following year. Those are the kind of things that tends to happen more frequently than anyone would like. And sometimes it’s small stuff, and it’s just about manageable, but more often than not it’s a red flag, whichever way you look at it.
The other thing that I think is very important to look at is, there are other flags. You know, are people whistleblowing or speaking up in the business; that they are seeing things that they’re uncomfortable with. It could be any kind of thing. It could be behavioural. It could also be that they think they’re seeing things through the expenses system coming through – that they’re seeing minor bits of frauds. And although those might not be material in their own rights, but if there is a pattern that this happens on a really ongoing basis, it starts to indicate that maybe the internal controls are quite poor, and there may be other things that they’re missing and they’re not really clamping down on. So those kind of smaller signals might indicate that there might be more systemic issues that need to be looked at.
JD: What I’ve seen recently as an auditor, Peter, is actually that the general fraud enquiries that we do carry out within a firm do seem to actually be a lot more widespread now. And I think even discussions with those who do monitor the whistleblowing logs, those are the people that we do speak to and look into.
PVV: Yes, absolutely. I mean, you know, whistleblowers are a real asset. It’s really interesting, because a lot of companies treat whistleblowers as almost like traitors, but they’re not. They’re an asset to the company. They’re people who are speaking up. They’re seeing things that are going wrong. They’re doing it because they want things to get fixed and they want things to get better. And then they’re thinking, they’re talking about these things with the best interest of the company at heart. But also, of course, their professional standards will also drive them to speak up, so they’re very important allies in ensuring that the company is well run.
JD: And these allies, they essentially can be at any level in the business. So can you just explain why you think it’s important that accountants promote ethics and governance at any level in the business?
PVV: The standards are the same, whether you are starting out as a junior accountant, or whether you’re the chief financial officer. The professional standards are the same, the professional ethics are the same. And yes, it’s more difficult when you start out to hold up those ethics, not that you yourself don’t believe them, because absolutely you will; but rather that, you know, there might be pressure on you to look the other way or not do something. And that’s where, really, your more senior colleagues have to step up and say: “No, that’s not acceptable. I’m not going to allow a fellow professional to have to compromise their ethics because of pressure from management.” And that’s really where the speaking up also comes up. But if you’re just starting out and you’re not comfortable with what’s happening or pressure’s being put on you, find an ally; find someone more senior who is going to listen, try to resolve the situation in some way – amicably, if possible. But there are speak-up lines, there are opportunities to speak up and say: “No, this is not acceptable. I’m not happy or comfortable with this, and I’m going to raise this as a concern.” And that’s absolutely the right thing to do.
JD: I feel like what you’re really touching on here, as well, is the firm’s culture and how the culture can really drive people to speak up and to come forward and just to really promote the ethics. So what would you say is ‘good culture’, and what would be on the other side, that more ‘bad culture’?
PVV: Well, absolutely. I think there are a number of factors that drive culture. I’m simplifying, of course, but you can see very clearly, firstly, what’s the risk appetite of the business? Is there a risk-taking culture where, you know, it’s: “Let’s try to bring the money in whatever it takes, and we’ll figure out the details later.” That is all, sooner or later, going to fall apart, and you’ve got to deal with the wreckage.
The other aspect is, you know, are you sailing close to the wind when it comes to regulations and laws? Does the business see regulation of laws as the baseline, and we don’t think about that and we operate to higher standards, or are we sailing close to what is allowed and what’s not allowed, because we think we can make an extra margin by perhaps moving into that grey zone? Again, that shows a culture where that risk taking is, is, is it could become problematic very quickly.
But the final part – the important part, of course – is, are you able to speak up? Can you raise concerns with your line manager? Can you raise concerns with their line manager if you’re not happy about something? Are there lots of listening ears? Are people happy to sit down and say: “Ok, let’s have a conversation. We’re keen to hear what you have to say, and let’s try and fix and resolve it.” Or are people who speak up punished? Do they face retribution? Are they fired or demoted? Those are significant indicators of the right culture – that that doesn’t happen. And clearly, if it does happen, then that’s not a place that I would want to work.
JD: So what is it about accountants that make accountants credible? Why do people listen to the accountant in the room?
PVV: Well, I think it has really a lot to do with our professional standards and code of ethics. You know, accountants have to act with integrity, objectivity, professional competence and due care, confidentiality, and have to demonstrate professional behaviour. So those are absolutely critical elements that every single ACA signs up to. That is a real asset that you bring to any kind of work environment. You know, if you can fulfill that, live those, you’re bringing that outside-in perspective, you’re bringing that real kind of objectivity. You’re not just telling people what they want to hear. You’re telling them the facts – and that objective view of how things are has a real value. In fact, it’s absolutely essential in business that you’re able to do that. And I think that’s really valued. I think our members really are valued when they are able to play that role in any business.
JD: So what you’ve touched on there are the ICAEW Code of Ethics, and I really remember that from my studies, and definitely those five are ingrained in me. And I’m sure the listeners going through the ethics learning programme, they should be familiar with it too. Are there any practical things that they can do to really apply that in the workplace?
PVV: Well, I think doing your job properly is absolutely critical. You know, what does ‘good’ look like? Are you comfortable publishing the numbers? Are you comfortable presenting your work? Is there pressure on you to somewhat modify. I think those are all aspects around how you live the code, and the professional standards really are about how you do your job, and are you able to do that without any interference? I think it’s really important, and I think the code is a great guide. We have lots of resources at the Institute to help you if there’s a challenge in that regard. There is a technical advice line that helps with ethical questions if you if you get stuck, manned by very experienced members who’ve been there, have seen that, who can talk you through dilemmas and challenges. So I think we have a lot of resources there. And of course, there’s the CPD and there’s the training and there’s refreshers. So if you get stuck, I think the important thing to remember is you’re not alone, that you’re not the only one going through it; that you’re certainly not the first, and undoubtedly you won’t be the last. And there are resources, and there are people who are happy to support you on the Institute side, to talk you through and help you through that situation.
JD: Thank you for that, Peter. I’ve really enjoyed this conversation today, and no doubt there’s a lot here that our listeners can take away, including the ICAEW Code of Ethics, and that there is support out there should they need it?
Now I’m keen to talk to Aydin to hear his experience of professional ethics as an accountant currently studying for the ACA qualification. Thank you for coming into the studio today, Aydin,
Aydin Bolton: Thank you, Jag. Thank you for having me here.
JD: How far are you into the ACA qualification?
AB: I think at the time of broadcast, I should be in my final six months of the qualification. The last two-and-a-half years have flown by. I work as a senior associate in the banking capital markets practice in London. That involves working on some astronomically large business audits. The size of the clients is really hard to comprehend sometimes, and we have such an important role in analysing those financial statements and conducting a thorough audit on each to make sure that those companies are indeed compliant and telling the truth in what they report. At the time of broadcast, I think I should hopefully be signed off on all of my examinations. It’s been an incredibly rewarding and enhancing process to follow, and I think I’ve learnt things not just that will benefit my professional life, but also my personal life as well.
JD: Now that’s really great to hear. So you mentioned that you work on some really big clients. What are your thoughts on what Peter was discussing earlier? Is there anything that resonated with you based on your experiences so far?
AB: Talking about culture and the tone at the top, I think, is incredibly important. We need to be doing more to ensure particularly that information is being disseminated within companies. I think it’s incredibly easy for companies to send email updates to their employees, but actually I think finding a concise and clear way that everyone working in a company can be informed and feel that they have the toolset they need to be aware of those risks is incredibly important.
JD: So what are your views as a trainee accountant in regards to ethics? What does it mean to you?
AB: Ethics is ultimately about doing the right thing, and I think we’re faced every day with numerous challenges to our ethics. I think being a chartered accountant and training towards that level of prestige can help to guide us in our ethical decisions, both in the workplace and day to day. We need to work away from ethics just being a buzzword and actually towards “How can we implement this?”, almost like a guiding code.
JD: So part of the ethics learning programme you’ll have completed the ‘Ethics in Practice‘ scenarios. Was it useful to discuss the ethics issues with your career coach in those six-monthly reviews?
AB: I think it was tremendously useful, just because ethics really needs to be ingrained to strengthen our understanding of what’s right and what’s wrong. My career coach and I would have this regular meeting –actually, we did it more frequently than six months – but it was good for us to have that conversation and really delve deep down into what some of the typical issues we might come across are. And it’s not just situations that would apply to my day job in banking and capital market audits, but actually a huge range of different scenarios, different companies and challenging situations that people might be put in.
JD: So talking about all of these scenarios, were there any in particular that challenged or shaped your thinking?
AB: There was maybe one scenario that stood out to me, and that was relating to someone who was treasurer to a cycling club. And it was perhaps particularly relevant to me because I actually stood myself as treasurer for a student society last year, and having never worked on a charity audit or had to do financial reporting for a charity, there was a lot I learned from that scenario that I could apply to the new situation that I was put into. Particularly I remember it talking a lot about related parties and familiarity threats in that scenario. I understand how it’s easy to take a different tone to a situation when you have friends and family involved, but actually the ICAEW Code of Ethics really sets out a clear structure of how we should tackle that situation and ensure that we are remaining fully compliant on maintaining a strong standard of professional ethics.
JD: We’ve really focused on ethics within practice and in business. So has studying ethics as part of the qualification influenced your thinking outside of accountancy?
AB: One hundred per cent. I think my thought process is a lot more clear when I perhaps see an ethical dilemma, and it has tried to guide me towards doing the right thing. No one’s perfect, but I will certainly think more about the implications of making an ethically misguided judgment. And I think in the workplace, there’s very strict procedures that we are told to follow, and I would like to think I adhere to.
JD: What you’ve touched on there is really important, because it goes back to the question that I asked Peter in terms of: ‘Why do we trust the accountant in the room, and what makes them credible?’ So I think it is very important, as you’ve highlighted, not only to just see it as something that is important within the workplace, but also something outside of the workplace as well. So you took part in the ICAEW celebration of the Global Ethics Day last year. Tell me about that – why was it important for you to get involved?
AB: I guess it’s important because we can’t just be ethical, but we need to be seen to be ethical. And I understand that I’m on a journey as I study, to learn more and to reinforce the ethics that I understand. So participating in that Global Ethics Day was a really valuable experience. There were lots of different workshops with some real industry leaders, from regulators and government and many other different organisations. I suppose for me [it was good] to be able to get some of their insights on why we do what we do, and why ethics is such an important deal now more than ever, and hopefully for me to be able to share a bit of the student perspective with those industry leaders. I hope I was able to add some value there and also learn something that I’ve been able to take into my job and practise every day.
JD: Some of our listeners might be wondering, how did you get involved with that? So how did it come about? How did you get invited?
AB: I was invited. I tend to get involved with a lot of ICAEW events nowadays, more so than ever since taking up the role of a London student society chair. But these opportunities are available to other ACA students, and I would encourage them to reach out to ICAEW if they see something that they’re interested in getting involved with.
JD: And more broadly, why should students get involved with ICAEW events and societies?
AB: I think it just strengthens your overall learning experience, I got involved with my local student society because I wanted to meet other trainees who were working at different companies. I just wanted to broaden my social circle more than anything else, to make some friends. But actually being involved in that society has added a lot more value than that to my life. I get to go along and attend events and meet some really interesting people within the industry, and I think you never know where that opportunity will take you.
JD: Thank you for that, Aydin. We’ll include a link to those opportunities in the show notes for this episode, and thanks again, both Peter and Aydin for joining us today. It’s been great to have you both in the studio.
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