Acting ethically is vital. It is a core part of our professionalism, and we have a duty of care that those who look at the financial information which we help to prepare. They need to be able to rely on us to give an honest view of what has happened, and what we forecast might happen in the future.
So it was with some dismay that I read recent reports that the UK's Financial Reporting Council (FRC) contacted the chief executives of the Big Four, plus three mid-tier firms (BDO, Grant Thornton and Mazars) and asked them what precautions were being taken to protect against cheating. They had become concerned after what the Financial Times describes as "widespread exam cheating" elsewhere. In what almost appears to be satire, a record fine of $100 million was recently imposed by the US Securities and Exchange Commission, when dozens of EY employees were deemed to have cheated in, of all things, an ethics exam.
The FRC had become concerned about "the potential impact on UK audits if such an issue was identified in the UK". This is an interesting statement. It does not refer directly to the exam cheating itself, but rather its implications. The FT article doesn't really expand as to what those implications are, so I will give my own personal opinion.
One implication is that those who have passed exams by cheating may not actually have the technical skills or knowledge that others believe or expect them to have, given the fact that they been examined and found to be duly qualified. Another is that if someone thinks it is acceptable to cheat in an exam, then it raises questions of both their overall integrity and also how objective their professional judgement will be in the future.
It's not always black and white
Most people would accept that cheating in exams is a black and white issue as far as ethics goes. However my experience of life and work is that there is often a large dollop of grey involved in most situations. Accounting standards do give us guidance, but they are often flexible.
Let's take the capitalisation of assets as an example. Most businesses will have a capitalisation threshold below which an asset is not capitalised, due to its low value, even if in all other respects it meets the criteria for an asset. But, if a business is sailing close to the wind in terms of profit expectations, sometimes a relatively small swing can move it from profit to loss, or vice versa. Taking advantage of capitalisation thresholds is one area that might be subject to manipulation in such circumstances.
There may be a temptation to move the benchmark for the capitalisation threshold up or down to shift items from the income statement to the balance sheet, or vice versa. This may appear far-fetched, given the relatively low materiality of the items involved. But sometimes items are material by nature rather than value. I know issues like this do arise because early on in my career I found myself involved in a discussion about just such a situation.
There is always a risk that we might find ourselves under duress to deliver the right results by manipulation, rather than applying accounting guidance. Many of us will be in a situation at some point, where we are pushed to what is expected of us, rather than what is right. It's easy to pontificate on the importance of acting ethically from an ivory tower, but real-life pressures might muddy the waters. Sometimes we may face a threat to our career advancement if we don't do what is desired. In extreme cases, perhaps even physical violence might follow. Sadly such things do happen, if rarely. The question for all of us is what would we do in such a case?
Many of us are fortunate enough to work in environments that foster ethical behaviour. But exceptions do exist. I have always personally regarded the threat of professional sanction as a good reason for trying to act ethically. But there is no doubt that it is easier to sign up to these principles in theory, than to apply them in practice. Steering the right ethical course is far from easy, even if most of us would draw the line at cheating.