Poor culture has been the focus of high-profile corporate scandals over the past few years, from the Post Office to FTX. The audit and accountancy profession has not been immune to this. 

The International Ethics Standards Board for Accountants (IESBA) has been responding to a number of high-profile incidents of unethical behaviour within accounting firms that resulted in sanctions, penalties and other adverse consequences. Initially, it issued a public statement in July 2023 emphasising accountants’ ethical obligations under the Code of Ethics (the Code).

More recently, it issued a report on firm culture and governance, highlighting the importance of culture in promoting and encouraging ethical behaviour in an organisation: “The academic research has found that the ethical culture of an organisation is probably the most important contextual element that explains unethical behaviour and that there is a strong link between an organisation’s ethical culture and the ethical behaviour of its employees,” the report states. 

But the focus on scandals alone can put too much spotlight on preventing bad behaviour, rather than encouraging the good. Professor Chris Cowton, Emeritus Professor at the University of Huddersfield and Associate at the Institute for Business Ethics, is a big proponent of an approach that focuses on cultivating and promoting positive outcomes. He has been working with ICAEW on a CPD module on building ethical cultures.

“Trying to avoid the bad all comes down to controls and that stops people doing really bad things, but it doesn't necessarily build a culture in which they choose to do good things,” he says.

Pressure is the classic reason why otherwise reasonably decent people do bad things, Cowton explains. This is deeply influenced by company culture; rewarding those that hit targets, for example, with no interest in how they met those targets in the first place. 

“Pressure can encourage people to take shortcuts,” says Cowton. “In the case of accounting, particularly auditing, there’s so much time pressure that it can get in the way of professional judgement and scepticism. Pressure is always the enemy of ethics.”

There are five categories of threat outlined in the Code: self-interest; self-review; advocacy; familiarity; and intimidation. Much of this is influenced to a great extent by good, ethical leadership. 

Leaders should model the ethical approach for the rest of the organisation, actively getting involved with ethical policy, taking any training themselves and ensuring ethics is considered in every decision. 

Leaders should communicate the company’s ethical position regularly, and not just in conversations around ethics specifically. Examples of good ethical values making a difference should be publicly celebrated.

“I say that leaders should talk about ethics when you’re not talking about ethics. I might sound stupid, but it actually means something important: if you only talk about ethics on ethics day or ethics week, the next time you’re talking about the financial position, or strategy, it goes out of the window. In other words, if ethics factors into the important talks, then people will be talking about ethics more and you start to make connections.”

Processes, procedures and guardrails are useful, but cannot make an ethical culture on their own. Otherwise, ethics becomes a compliance exercise, which doesn’t go far enough. “It’s a particular issue in heavily regulated industries that they think ethics is really compliance with rules and regulations. This can infantilise the ethical decision-making in the organisation; i.e. it’s not against the rules, so you can do it. That’s not good enough for an accountant to actually behave.”

Audit firms and finance functions should consider having an organisational code of ethics along with the ICAEW Code. They can set about ensuring that their own subculture is conducive with the fundamental principles of the Code.

The Code provides the rationale for policies and procedures, outlining core principles on which to base ethical decision-making:

1. Integrity
2. Objectivity
3. Professional competence and due care
4. Confidentiality
5. Professional behaviour

This means being straightforward and honest, avoiding bias and conflict of interest, continuous learning and development, an ability to manage confidential information effectively, and compliance with the law.

The Code of Ethics alone is not enough; it needs to work alongside that ethics-forward leadership and communication, clear organisational purpose, regular training and strong speak-up policies. 

“Culture is deep, shared assumptions and beliefs,” says Cowton. “We need to think about how we surface that. To an extent, this is about defining what we mean by certain words and values. You might have a specific idea of what integrity means for your organisation: that should be communicated and understood across the organisation.”

A clear, well-articulated purpose aligned with ethical values can help to cement ethical company culture. “If you’ve got a well-structured purpose, it can help you have a good conversation about values, which you want to embed in your culture, supported by a code of ethics to guide behaviour. This helps people to get into the spirit of ethical behaviour, rather than just the letter.”