The International Ethics Standards Board for Accountants (IESBA) has launched a standard-setting project on firm culture and governance. The project aims to develop a principles-based culture and governance framework for accounting firms that promotes, supports and reinforces a high standard of ethical behavior across all professional services. 

As part of this initiative, IESBA will also develop non-authoritative materials on the importance of ethical behaviour in accounting firms, and to support firms with guidance on embedding ethics into their strategies and operations. These will also help to involve other relevant stakeholders when developing an ecosystem for highly ethical accounting firms. 

The initiative stems from recommendations made by IESBA’s Working Group on Firm Culture and Governance in its recently released fact-finding report.

Following a series of well-publicised ethical failures within the sector in recent years, IESBA has made accounting firm culture and governance a strategic priority. It established the Working Group to gain a better understanding of culture and governance, and the impact of these factors on compliance with ethical requirements by accounting firms and networks. 

The development of the report was informed by extensive outreach to stakeholders, as well as a review of academic literature. The report outlines the role of ethical leadership and robust governance within accounting firms as key drivers in creating a culture that promotes ethical behavior.

It highlights the importance of transparent leadership, firm-wide accountability mechanisms and the provision of independent input. Performance incentives should be aligned with ethical behaviour, continuous ethics education and a culture of open discussion and challenge.

IESBA will conduct a series of in-person and virtual global round tables in March and April this year to gather views from a broad range of stakeholders. It will consult on proposed new standards and authoritative material in due course. This is likely to focus on the importance of ethical culture in driving behaviour; the common characteristics of an ethical firm; and the contributions that promote ethical behaviour from stakeholders within the ecosystem.

David Gomez, ICAEW Senior Adviser, Ethics, says: “ICAEW welcomes IESBA’s focus on promoting ethical culture in firms. We had very positive discussions about this when our President, Malcolm Bacchus, and CEO Allan Vallance hosted the IESBA Chair at Chartered Accountants’ Hall last year. We also met with the IESBA Working Group as part of its outreach programme and facilitated introductions to UK academics and firms, to ensure that our perspectives were heard.” 

Gomez notes that Part 2 of the Code of Ethics requires all professional accountants to play a role in promoting an ethical culture in the organisations in which they work. These obligations are fleshed out further in ICAEW’s new updated Code of Ethics, to be approved by Council in March. 

“Some firms have already implemented an ‘ethics by design’ approach,” he says. “In very broad terms, this requires organisations to acquire a thorough understanding of their decision-making processes, procedures and information flows; to anticipate where ‘ethical pinch points’ and potential dilemmas might occur; and to put in place advance mitigations to prevent them occurring.”

As part of its suite of ethics CPD materials for members, this month ICAEW is launching its Ethics CPD Course – from theory to practice, an on-line course on ethical culture.