Professional ethics has become a hot topic in recent years, fueled by scandals such as Enron and the realization by professional bodies, including the Association of Chartered Certified Accountants (ACCA), that the importance of acting ethically needed more emphasis in professional training. If finance professionals don’t act in line with laws, tax rules, and accounting standards, how can business and society at large put their trust in financial statements or tax returns?

Recognizing the interest in professional ethics, the European Federation of Accountants and Auditors for SMEs (EFAA) and the Accountants Association in Poland (SKwP) conducted a survey among accountants in business and practice (mainly small and medium-sized firms). They looked at how often accountants have come under pressure to act unethically and how they responded. The online survey gained 662 responses from 23 countries, with particularly strong participation from accountants in Spain, Germany, and Poland.

This article summarizes the key findings. On February 9, 2017, in Brussels, EFAA hosts a lunch-time event to present and discuss the findings. (If interested in attending, please email secretariat@efaa.com.)   

Ethical Dilemma

The resulting report—Accounting and Ethics: Pressure Experienced by the Professional Accountant—written by Marie Lang, Anna Karmanska, and Robin Jarvis—confirms that pressure is widespread. The majority (64%) of respondents confirmed that they had, during their professional career, been put under pressure to act contrary to their professional ethics or to tax and/or accounting legislation. Some 37% had been the subject of such pressure on five or more occasions. 

Accountants in all types of roles had come under pressure: internal and external auditors, tax advisors in practice and in business, accountants in practice and in business, bookkeepers, and external consultants. Those exerting the pressure included clients and owners of the business or practice, directors or board members, line managers, and colleagues or people of similar seniority.

The actions requested typically affected the reporting of the entity’s performance and often its tax position. The most common request was for the postponement of cost and expense recognition (see list “Pressure to do what?”). This was closely followed by pressure to manipulate the value of inventories, and requests to categorize personal expenses as company expenses. 

When asked about potential rewards for acting unethically or contrary to legislation, the vast majority (88%) of those responding said they were not offered or given any explicit reward. However, many felt that there was a perceived reward in the sense of a continuing relationship. The researchers suggested that a lack of explicit rewards being offered could indicate that the pressure accountants come under is seen as “normal behavior” in business.

Some respondents said they had been threatened by the person exerting pressure on them. These threats typically involved some sort of financial loss, such as loss of income to the practice, loss of employment to the individual, or the termination of an ongoing relationship.

Levels of Resistance

Based on the survey findings, most accountants do not succumb to pressure: 68% (of 304 respondents) did not do as asked. They refused to act for ethical reasons or provided sufficiently strong arguments to persuade those applying the pressure that the actions they wanted were unnecessary. The researchers identified a number of themes in the arguments respondents put forward, including:

  • their need to protect their professional reputation;
  • the fact that accountants are bound by professional ethics;
  • the requested action not being in line with accounting rules and legislation; and
  • the idea that accounting professionals cannot be associated with tax evasion.

Some respondents argued that the pressure to act unethically was caused by short-term problems that accountants could help to resolve, enabling appropriate decisions to be taken so that the business could be sustainable in the long term.

A significant minority (32%) did succumb to the pressure put on them to act contrary to their professional ethics or legislation. Many did so because they felt their employment and livelihood were under threat. Some were bullied in the workplace. The survey also revealed that, when respondents came under pressure to act unethically or contrary to legislation more than once, they ultimately left their employment. The researchers therefore concluded that these respondents perceived some sort of moral line that could not continually be crossed.

Those facing difficult situations in the workplace described a sense of feeling alone and without support. Accountants working in businesses felt less supported and more distant from their professional body than those working in professional practices. The researchers also highlighted the finding that respondents were more likely to succumb to pressure when they were acting as an employee within an entity rather than as an external consultant. They therefore concluded that an individual’s ability to put some distance between them and the person applying the pressure helped them to withstand it. 

Just over half (51%) of respondents said they had consulted with someone at the time they felt under pressure. They most often turned to a colleague, followed by their professional body or a manager not associated with the issue. Although respondents generally found consultation to be helpful, the researchers found no link between the act of consultation and the respondent’s subsequent actions.

Based on this extensive European survey, it’s clear that finance professionals in business and in practice can expect to come under pressure to act contrary to ethics or legislation during their careers. The good news is that most are likely to withstand such pressure, even though it can create a difficult working environment or even the loss of a job or client. A significant minority are likely to succumb, however, at least the first time pressure is exerted. The inclusion of ethics in professional qualifications and subsequent development activities therefore remains vitally important, not only to help individual finance professionals to withstand pressure, but also to defend the reputation of the profession as a whole.

 

This article was first published in the January 2017 issue of Accounting and Business' UK edition here. 

Anna Karmanska

Professor in Economic Sciences, SGH Warsaw School of Economics

Anna Karmanska is a professor in economic sciences. She conducts scientific and didactic work in the area of accounting at SGH Warsaw School of Economics. Karmanska was the Head of the SGH Senate Program Commission, and is currently serving as Director of the Institute of Accounting at SGH. She received a Ministerial Award and a Medal of the Commission of National Education for her academic work, served as advisor to the Head of the Insurance and Pension Funds Supervisory Body, as member of the Polish Accounting Standards Committee and as independent member of the Audit Commission to the Minister of Justice. Since 2006, She has been the Chair of the Ethics Commission to the Main Board of the Accountants Association in Poland and a Vice Chair of its Scientific Council. Ms. Karmanska was a Board Member of EFAA 2012 to 2015.

Robin Jarvis

Professor of Accounting, Brunel University and Special Adviser to the European Federation of Accountants and Auditors (EFAA)

Robin Jarvis is a professor of accounting at Brunel University, London. Prof. Jarvis has worked on SME issues with the International Accounting Standards Board (IASB), the International Federation of Accountants (IFAC) as well as the European Financial Reporting Advisory Group (EFRAG) and focuses his research on the Accounting/SME nexus. He serves as a Special Advisor to EFAA.

Marie Lang

Director, Professional Development, EFAA and Head of Corporate Finance, GBAC Ltd.

Marie Lang is EFAA’s Director of Professional Development and the Head of Corporate Finance at GBAC Ltd. Marie Lang has been overseeing EFAA’s technical work for 5 years and represents EFAA at the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA) Consultative Advisory Groups (CAGs) as well as being a past member of European Commission Expert Groups on SME Accounting and Transfer of Business.