UK-based accountancy body ACCA (The Association of Chartered Certified Accountants) has consistently emphasized to their students and members the need for ethical practices in finance and business in general. As a principle most people can appreciate ethics, however, in application, they are more challenging to navigate.
Sri Lanka’s recent economic crisis also suggests that wider awareness and application of ethics may be part of the solution for the country’s emergence from the trouble.
A panel of ACCA members recently discussed the frontiers of ethical practice in the finance profession. On the panel were Buddhi Pathiraja, Associate Director, BDO Consulting, Praveen Ruberu, Principal, EY Sri Lanka, and Dinusha Weerawardane, Subject Head of Accounting and Finance, University of West London and a Council member of ACCA.
What are, in your opinion, the emerging frontiers of ethical practice in the finance profession?
Buddhi: In the past, a handshake was a signal of agreement. When somebody said, ‘You have my word’, it mattered. But unfortunately, over the years, our ability to work on such a basis has eroded. It’s not just the accounting profession but many others including the medical and legal professions have introduced codes of ethics because they want members to follow a certain protocol. So, I would say, the need for ethics arises due to human behaviour. For various reasons from increasing revenue, and business volumes to simply winning recognition, people compromise ethical behaviour and that is a significant challenge.
So business and their transactions aren’t what they used to be. These days a contract can be a thousand pages long. There is no way but to document each party’s obligation to avoid misunderstandings. So the complexity requires a formal approach?
Buddhi: Exactly, and consider also the new laws and regulations that are promulgated from time to time and their complexity. Recently an anti-money laundering act was introduced in Sri Lanka, which requires adherence to new requirements and regulations. Each of these new laws requires our profession to add clauses to our letter of engagement and make changes to the way we work. In our finance profession, we also have to check if there are breaches of confidentiality.
Agreements have become more voluminous as we have to think up new ways to address the loopholes people are discovering. That’s the challenge.
Praveen, you are a career finance professional with EY Sri Lanka. What do you think are the frontiers of ethical practices in the accounting and finance profession?
Praveen: Professionalism and ethics are the two cornerstones of the accounting profession. As accounting professionals, the behaviour we try to impart is confidentiality and ensuring there is no conflict of interest. But like Buddhi says, these can no longer be governed by a handshake. The environment we operate in has changed drastically.
Not just Sri Lanka’s economy, but all economies are stretched and stressed. Economies are in a dynamic environment because of digitalization and globalization. In an environment such as that, as we push for better performance indications, ethical gaps can emerge. The ethical gaps can lead to conflict when stakeholders are overlooked or neglected. In addition, new laws and regulations are being introduced. So we as accounting professionals need to ensure all these are covered in our work and when we engage clients we have to ensure all these important areas are addressed.
Dinusha, you bring a different context to this discussion. In one sense, you are an educator and you are also a member of ACCA’s global council. As a result, you will have a big-picture view of how ACCA views things. What are your thoughts on the challenges with ethics in the profession?
Dinusha: ACCA has conducted a lot of research, including global surveys around ethics and how things are changing and also on the role of the profession. ACCA has identified seven co-priorities for the profession, ranging from transforming the public sector, strengthening ethics, driving sustainable business, supporting entrepreneurial growth, building resilient economies, advancing standards and regulations and developing the talent for tomorrow.
The accountancy profession plays a key role when it comes to all of what I just mentioned, including supporting governments and policymakers. The accountancy profession is a super-connector, bringing together regulators, governments, educational establishments, trade organizations and global donor organizations.
When it comes to some of the challenges for the profession, I think, ethics and AI top the list. Technology is advancing very rapidly and there are lots of new tools, like ChatGPT for example, that are widely available and easily accessible.
In the higher education sector, ChatGPT is a significant challenge. It can be used positively, for students to develop their writing skills, and improve the structures of a paper and similar applications. But unfortunately, it is sometimes misused and that is an ethical challenge. Not just in higher education but this happens in the corporate world too. And when AI tools are abused and people feed sensitive client information into online tools confidentiality becomes an issue. All this confidential information is now somewhere on the internet. It will also be a breach of client confidentiality. It’s a breach of GDPR too. So that’s one of the big challenges that we are facing.
Praveen, does your organization, EY, have an AI policy?
Praveen: Yes, we do. We have regular updates to understand its application too.
In advisory services, we are often analysing numbers to project performance under various scenarios. AI as a tool is useful in such work. For drafting advisory reports AI would be useful. Assurance work, or auditing, is moving in the direction of digital audits with the deployment of various data analytics tools. But in general, AI does not figure so much in assurance work because we are working with auditing past performance.
Buddhi, you are on the consulting side of the business. In the work that you do, where do the conflicts around ethics arise?
Buddhi: Conflicts arise both internally and externally. Internally, conflict arises where a person might have a personal interest in the work or they might have personal interests through relations. All this has been addressed through our HR policies, which are drilled into the team during orientation and later.
So it’s up to the management of the entity to ensure that they drill it in and have rain checks on all that.
Ensuring ethical behaviour in a company operates goes beyond mere common sense. So how we have to be vigilant, to rotate staff with each assignment. Also, most HR divisions in organizations have to play a vital role in ensuring that the staff recruited have a strong ethical compass.
Dinusha: To add to that, it’s not always about the actual conflict of interest, but it’s also the perceived conflict of interest.
Praveen: In accounting and finance sometimes there are client requests for certain actions that violate the ethical conduct. For instance, when the accounting standard tells us to treat a certain transaction in a specific way, which may then show a lower profit, the client may request the transaction be treated differently so that the bottomline is greater or the distribution is different. Not accommodating such requests on clear professional grounds is also part of ethical practice.
So it looks like Sri Lanka’s current context also has opened up new frontiers in ethical practice. Look at the challenges Sri Lanka faces with state-owned enterprises. Now, state-owned enterprise financial statements are not IFRS compliant unlike in the private sector.
However, businesses interact with state-owned enterprises. There are so many interfaces between the state and private organizations. What are the ethical challenges this poses to firms like yours?
Praveen: In restructuring state-owned enterprises, the key point for me is that it’s not only the accounting professionals who need to be ethical but everybody in the whole system has to be on the same platform. As Dinusha said, of the seven priorities ACCA recognized, trust is one and they emphasize trust to be strengthened by ethics. Because ethics is the principle that will harmonize all actors and point them in the same direction. So in this process of restructuring state-owned enterprises the advisors, lawyers, government entities, non-government entities, and everybody else have to be on the same platform. If one is not, the output is going to be different.
Buddhi: I agree with Praveen, it’s a system that needs to change. The system has evolved over the years, where ethics was not a priority and ethics was the last thing on everybody’s mind. As a result, each division, each area, in state-owned enterprises isn’t used to behaving ethically. If you drill down, the reasons are very basic. Often there are no rule books or the rule books that exist are outdated. Some of Sri Lanka’s laws and statutes are several decades old.
I would point out that the decision-making process in these organizations is long-drawn out. Sometimes, decisions take months, if not years. So, then people try to find shortcuts leading to unethical behaviour, simply to get things done.
Praveen: Right now, we don’t have much time for the reforms, we can’t afford to take several years over this.
Dinusha: But it’s also about new talent. It’s our responsibility, when developing future talent, to make sure they are well-versed in what’s ethical and what’s not. So when they enter the workforce and engage with organizations, they can break the cycle by standing up for ethical behaviour.
So you are in the education sector in the UK, and you possibly interact with a lot of young people, the future of the finance profession. How does one get about instilling the fundamentals?
Dinusha: We usually try to embed ethics into the curriculum to teach these values and behaviours. When a qualification is accredited by a professional organization, like ACCA, then you have a code of ethics, and that helps shape their professional behaviour. It’s also about constantly reminding them, and showing them the consequences of ethical breaches as well as highlighting the knock-on impact it could have on so many other things.
We even go as far as inviting industry professionals, and those from financial practice, to explain and discuss real-life ethical challenges with students. So it’s a multifaceted way of driving understanding and behaviour.
How does the ACCA Council shape the agenda?
Dinusha: As I mentioned before there’s a lot of work being done around professional insights. These insights are gathered at a global level. ACCA consults a wide spectrum of stakeholders and is not limited to just members. In any one particular sector, they try to cover a broad variety of people and countries. Then there is the voice of regulators, donor organizations and so on also represented. All of these opinions combined offer a rather holistic view of what should be done.
The accountancy profession is at the heart of driving a lot of things. It’s very important to make sure the new generation also understands that. That would improve public trust in the profession in the long term. You see, it’s all very interconnected.
I’ll ask each of you to take a minute and share any final thoughts.
Buddhi: ACCA has a code of ethics that addresses practice across the profession for its members. So all this comes down to the fact that society, in general, has forgotten some of the basics. As Dinusha highlighted, if we train the new blood, in each profession, to act ethically, I think we could make Sri Lanka a better place.
Praveen: In our profession, the individual needs to be aware of the laws and regulations to navigate this environment with integrity. As a simple example; the ethics fundamentals I learnt when I did my accounting exams are the same today, but the context in which they work has changed. So we as professionals need to understand the present context and appreciate how to apply ethical behaviour in that context.
Dinusha: Ethics and public trust are at the core of the finance profession. I’m very confident that the accountancy profession will continue to adopt the highest ethical standards to promote responsible business. It’s a matter of making sure that not just the accountancy profession but everybody can benefit from this.