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Investigation launched into KPMG Conviviality audit
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Investigation launched into KPMG Conviviality audit

Bring ethics back to the profession

by

Philip Fisher worries that recent news stories could damage the profession's hard-earned reputation for probity.

20th Oct 2021
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When this accountant set out in the industry and, more particularly, started taking exams, he was constantly bombarded by reminders that one of the key tenets of the profession was the need to behave ethically.

At various points in real life, ethical questions have become critical. This has meant offending clients, turning down opportunities to earn big fees and a good few sleepless nights worrying about whether a proposed action was acceptable.

More recently, senior staff and partners in larger firms have probably only had occasional reminders of their ethical obligations, possibly via some kind of video presentation that was designed more like a gameshow than a warning about an issue that could cost you your career or, in extreme circumstances, a great deal of money or even your freedom.

It is always difficult to judge the values of one period against another, but many might have come to the conclusion that today’s accountants are no longer operating with quite the same stringent ethical standards as generations before us.

Last week, AccountingWEB ran two stories that were equally depressing. Mark Taylor's “Three large firm audit probes indicate ‘systematic failure’” included the depressing view of City University accounting expert Professor Atul K Shah:

“The recent spate of audit failures and investigations are no surprise given the neglect of audit quality which has been systemic and compromised by commercial motives of what ought to be ‘public interest’ protecting professional firms”.

As if that wasn’t bad enough, Tallula Brogan must have shocked even hardened observers of our profession with her story entitled “KPMG offers ’untruthful’ defence in Silentnight tribunal”.

The KPMG story is grossly distasteful. It seems, although experts in the field will understand the issues in greater depth, that the firm and/or some of its partners deliberately put a company into liquidation to make fees and then covered up actions that bordered on criminality.

In passing, some might wonder whether the firm’s decision to sell off its business reconstruction arm earlier this year was in any way connected to the scandal and the need to put distance between a respectable accountancy practice and what appears to have been a disreputable unit that might tarnish its reputation.

To make matters worse, these are just the latest in a long litany of embarrassing stories about accountants who fail to even approach ethical standards that should be the bare minimum.

This columnist is frequently asked whether the constant audit failures that have often led to massive losses for stakeholders in failing businesses are the result of ineptitude or something worse. As the mass of scare stories builds, that debate hots up.

On a different tack, earlier in the month Panorama and the Guardian ran the story about The Pandora Papers. For anyone who missed this latest piece of investigative journalism regarding financial wrongdoing primarily centred on tax havens, this was an in-depth look at the way that the mega-rich hide wealth, often illegally acquired, from the authorities and, in many cases, evade taxes by doing so.

Tax avoidance and evasion are further fields in which ethics should be applied on a strict basis. It is becoming increasingly clear that many accountants, and other professionals also, may not apply quite the same standards today that their predecessors did in the past.

This is an area that often gives rise to heated arguments. No one would disagree with the case law principle that everyone can arrange their tax affairs in the most advantageous fashion possible. However, when this involves subterfuge, it is hard to believe that ethical guidelines have not been breached.

What is going on?

It is high time that the ICAEW and its peers across the UK started carrying out wider ethics audits on members.

If partners knew that there was a genuine prospect of getting a hauled over the coals and then drummed out of the brownies, to mix a couple of metaphors, perhaps they would begin to behave ethically again. Otherwise, we will all have to get used to being treated as pariahs by those pursuing respectable professions such as estate agency, the marketing of second-hand cars and loan-sharking.

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Replies (7)

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By SteveHa
21st Oct 2021 11:43

No - the profession has not lost its ethics. The big players have.

Despite being often vilified by the editorial team here as an "unqualified cowboy", I do have, in fact, more than 40 years experience in tax work, and 20 of that within HMRC. I have, since leaving HMRC worked as an employee in regulated practices (ACCA and ICAEW) rather than on my own account.

My time in HMRC taught me ethics (this in a time before HMRC ethics were called in to question), and my time in practice has taught me to say "no" to senior partners on an all to regular basis.

All of this, in small to medium sized practice.

I had the opportunity to go work for PWC. I refused. I would much rather be accountable and visible where I am, than invisible and unnoticed in a large conglomerate.

Where are ethics more important. Easy, where I am accountable, and so where I am. Not as an invisible cog in a very large wheel.

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Replying to SteveHa:
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By Paul Crowley
21st Oct 2021 16:53

The Big firms are the culprits
Integrity and ethics really are at the personal level.
Big firms are just too big.

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By CJaneH
21st Oct 2021 13:14

I left my last job and set up as a sole practitioner over 20 years ago because my boss was treating clients as customers. The unannounced visit on a client's home, my bosses home and the office did not inspire me with confidence either.

Definitions which I wish people would understand:

Customer - as in the customer is always right

Client - Seeks and is given advice which they may or may not like. They can however choose who advises them.

Tax payer - Has no choice. HMRC does not have customers.

Ethics - Firms must select partners, directors & staff who act ethically. You can define ethics but you cannot teach people to be ethical people.

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By Hugo Fair
23rd Oct 2021 12:26

"If partners knew that there was a genuine prospect of getting a hauled over the coals and then drummed out of the brownies, to mix a couple of metaphors, perhaps they would begin to behave ethically again."

Not a hope ... until two things change:
1. The 'reward' element of the risk:reward ratio needs to be severely diminished. There are lots of things that a person of imperfect ethical stature will not risk for a £10k pay-off, but quite happily entertain for a £1m+ bonus/profit-share.
2. The 'penalty' for being found out needs to be made personal (i.e. incarceration of a magnitude equivalent to that applied if robbing a bank for that size of pay-off, not a relative slap on the wrist).

As others say, beyond that it's a matter of the core ethics (or lack of them) in the individual ... but it's noticeably the 'culture' in the BIG accountancy/consultancy firms (and banks) that attracts and rewards precisely those with a weakened sense of propriety!

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Mark Lee 2017
By Mark Lee
25th Oct 2021 18:59

There is another side to this and it affects all those accountants who, at best, turn a blind eye to tax evasion by small clients. You know the sort of thing:
- undeclared cash receipts
- non business expenditure put through the business
- family members, nannies and gardeners etc on the company payroll
Not something any members of AccountingWeb would do I'm sure - at least not whilst also castigating the big 4 for their ethics ;-)

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Replying to bookmarklee:
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By Hugo Fair
26th Oct 2021 22:59

Of course it must exist, but I don't personally recognise this "other side" from your illustrative examples. I don't tolerate those types of fraudulent abuse (which are extremely easy to spot and rule out) and am happy to show the door to those who find that unacceptably purist.

On the other hand I am prepared to effect an introduction to a range of specialists, all of whom I hope have equally high ethical standards but are more focused on 'how to save tax' (aka tax planning) on a scale that exceeds my expertise.

Those (HNW individuals or corporates) with deep enough pockets to approach the big 4 aren't my cuppa tea ... but my gripe is not with them anyway, it's with the big 4 (or 6 or whatever) whose apparent lack of ethics puts them into the category of Dante's lost souls screaming into the void.

For the avoidance of doubt, I draw a line between planning future actions in order to legitimately reduce the amount of tax likely to become due - and trying to manipulate facts after the event in order to reduce the tax already due (which seems to the driver for much of the post-dodgy-audit culture at the top end).

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By Scott59
30th Oct 2021 12:03

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