Atsushi Kato is a former member and Vice-Chair of the Accounting Standards Board of Japan (ASBJ) and a former Partner at PwC, Japan. He has been a public member International Ethics Standards Board for Accountants (IESBA, the Ethics Board) since 2014. 

What made you interested in serving on the Ethics Board?

AK: I am very excited to have the opportunity to serve as a member of the IESBA for a number of reasons. First, the board has a very significant and important responsibility to serve the public interest, and I am excited to have the opportunity to contribute to that. Secondly, though I’ve been involved in setting accounting and auditing standards for 35 years or so, what I have done in the past was very detailed and precise, focusing on rules for specific standards such as financial instruments, inventories, taxes, revenue recognition, etc. The IESBA Code is different in that it is principles based, and therefore, more high level. So, for me, it feels fresh and new, and that excites me.

What particular perspectives or experiences do you bring to the board as a public member?

AK: I have a pretty unique background with a broad variety of professional experience. I worked as a professional accountant in practice with PwC for 35 years. I also have experience as a professional accountant in business; before working forPwC I was a consultant for several years. As I mentioned already, I was deeply involved in setting accounting and auditing standards for a long period of time. Currently, I am in a very independent situation; I don’t belong to any organizations at all, which is what will enable me to contribute to the IESBA as a public board member and to serve the public interest from an independent standpoint.

Your term with the IESBA began in January 2014, and you have already attended several board meetings this year. What are your impressions of the board so far?

AK: I’ve been very impressed by the liveliness of the discussions and the active level of participation from all of the board members. The discussions have been very constructive, and there is a very positive atmosphere at the meetings. I was also very impressed that on significant matters under consideration, the chairman of the Board asked the board members to vote yes or no. It was very clear, and very transparent. It was different from our process in Japan, where we don’t normally ask the members to vote yes, no. This allowed the chairman to be able to generally gauge whether the feeling in the room was positive or negative, and decisions could be made without 100% consensus. Not only was it clear, but it allowed for a very transparent and decisive decision-making process. 

A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. What does this mean to you?

AK: As members of the IESBA, each one of us must commit to act in the public interest, which means that we should not represent the views of our nominating organization—in my case, the Japanese Institute of CPAs—and also our jurisdiction—in my case, Japan. However, acting independently is easier said than done. In fact, our culture is probably ingrained in us in ways that we don’t even realize.

Not only that but in order to achieve convergence between the IESBA Code and the Japanese ethics standard, I have to consider the circumstances in Japan, in order to make sure it is possible, given local laws and customs, to apply the principles of the Code in Japan. I think that it’s about balance between the global and the local; I have to balance working independently of any organization or jurisdiction while representing Japan and its circumstances, so that I can raise any issues that would hinder or prevent convergence between the Japanese standard and the global one.

I think that all the board members probably struggle with this as we all come from different parts of the world and each has his or her own culture, business practices, and mindset.  

What pressures or challenges do accounting professionals face today in terms of acting ethically?

AK: Unfortunately, major accounting and auditing scandals continue to occur in Japan and around the world, even after the Enron scandal. In some cases, the credibility of the auditor’s report has been called into question by the users of this information. These high-profile scandals may also cause some to question the ethics of accounting professionals.

However, many are taking steps to improve audit quality and that is a positive development. For example, earlier this year in April, the European Parliament approved a proposed Directive mandating firm rotation, which is intended to improve the quality of the statutory audit in Europe. I think this shows that they recognize that there are some problems in accounting/auditing, and that there is room for improvement in terms of audit quality. It shows that concrete steps have been taken by Europe to introduce changes to address this.

Of course, at this point, it’s unclear whether firm rotation will improve audit quality as intended. I think that a parent company and its subsidiaries using different auditors could cause other problems. In my opinion, if mandatory firm rotation is systematically and successfully introduced in Europe, then the same system should be introduced in the US and around the world, otherwise, there will just be more confusion.

Right now the board has a somewhat related project on its agenda—and this is a project that looks at partner rotation as a way to safeguard against threats arising from long association with a client. At this point in time, it is difficult to predict whether the move by the European Parliament will influence our activities or not. It is an area that we are watching closely.

What do you see as the key factors influencing the development of global ethics standards in the future?

AK: I think the most important thing in developing a global ethics Code is recognizing that different ethical norms do exist—between organizations, industries, and countries. Even though now everything is globalized, including economies and business practices, and so on, there are still differences among different organizations, industries, and countries. So the way that a professional accountant operates in different environments should also be different. The important thing is--as I said before--to maintain a balance between local and global. We as board members should have a mutual understanding of different business practices and cultures around the world. By having that mutual understanding, we can develop a very strong global ethics standard, which can be implemented in all the jurisdictions of the world.

About the “We Are IESBA” Series
The purpose of this series is to bring the work of the IESBA to life, adding context and color to the people who carry out the activity of ethics standard setting for the international accountancy profession. The series aims to further increase the transparency of the board’s activities. Transparency is written into the board’s due process, and indeed, into its operations. The IESBA’s agenda papers and meetings are public (you can register to attend and observe any meeting, or listen to meetings and summaries via our iTunes channel). To learn more about the board, follow along via Twitter and email: Follow @Ethics_Board and subscribe to IESBA eNews. For additional developments related to ethics and other areas of the profession, subscribe to topics from the Global Knowledge Gateway.

James Gaa is a Professor of Accounting at the University of Alberta (Canada) and has been a public member of International Ethics Standards Board for Accountants (IESBA, the Ethics Board) since 2010.

What made you interested in serving on the Ethics Board?

JG: I’ve been aware of the Ethics Board for a number of years. Their meetings are open to the public so I attended a meeting as an observer in the late ‘90s or so. Also as an academic—I teach accounting and ethics at the University of Alberta—I felt a responsibility to be engaged with the profession, which I’ve tried to do over the years. I’ve been involved with one of the member bodies in Canada and served as a member of its Board, and I was a member of the International Accounting Standards Committee, the predecessor of the International Accounting Standards Board, in the late ‘90s. So I’ve been involved with the profession for many years. Joining the Ethics Board was a natural progression. I also find the international and cross-cultural aspects of it really interesting.

What particular perspectives or experiences do you bring to the board as a public member?

JG: All members are obligated and agree to act in the public interest and not in the interest of any one segment of society. As an academic and public member, I’ve never worked as an accountant. That can be both a strength and a weakness, but it allows me to bring a different perspective to the board. Everyone is biased to some extent, so of course I bring mine as well. But, I hope it is a more disinterested point of view. I think that’s an important thing.

I’m trying to encourage the board to apply more of a research base to our standard-setting process. One of the limitations of the Board is resources, but if we can leverage members of the academic community to support our efforts by providing reviews of research or analyses, that would be very helpful to us. Increased interaction with the academic community is part of our strategy and work plan for the future, so it’s a visible and fairly prominent initiative of the board moving forward. I have had some discussions with organizations in the academic community to determine their interest. So far I have talked to several groups, and they are very interested, so I think it will gain some traction.

Since you became a member, how has your view of the Ethics Board and its work changed? Has serving on IESBA been what you expected?

JG: I think my basic view of the Board has not really changed, but it has developed. I’ve been impressed with how challenging the work is. It’s intellectually challenging, and the cultural differences that come to the Board is something I have come to appreciate even more. I had had experience with that through the International Accounting Standards Committee, but I think it’s fair to say that the cultural differences are more suppressed when you are dealing with accounting standards than when we’re talking about ethics.

I have also been very impressed with the other members of the Board. Their hard work and their abilities, their perceptions—it is a really impressive group that I’m privileged to be a member of.

A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. What does this mean to you?

JG: Part of it is what I was just saying about being a public member—that is, having sort of a disinterested, more neutral point of view and trying to bring that to the table. As a concept, the public interest is almost impossible to define. IFAC and the Ethics Board have tried. And there is much literature in the sociology profession that tries to define the public interest. I think it defies definition partly because it probably means a number of different things. But one thing it means is to try to separate out our deliberations from the private interests of specific sectors of the economy, occupations, industries, or companies. So to me, it means not favoring any one group or any one segment.

That’s a big challenge with international standards. Because there is so much diversity in the world of occupations and national interests, and cultural differences and so on, to somehow represent all of that in our setting of standards, and then, therefore, in the standards themselves, is a real challenge. One of the ways we address these differences is by basing the Code on principles, rather than rules, so that it can be applied in any jurisdiction, regardless of local regulation and custom.

For instance, the task force for Part C of the Code, dealing with professional accountants in business, is grappling with this in its work around inducements, gifts, and bribes. Clearly there are cultural differences about what is acceptable behavior from one place to the next. Gifts are especially challenging, for example, what is a gift, and what does giving a gift or receiving a gift imply about peoples’ relationships, and so on? And, how can we factor that diversity into writing a standard? Or do we?

At our meeting in October, we finalized an Exposure Draft that will be looking at two issues: fair and honest reporting and intentional manipulation of information, and pressure imposed on professional accountants and imposed by them on others to breach the fundamental principles of the Code. The Exposure Draft will be open for comment from mid-November 2014 at the board’s website—www.ethicsboard.org. We welcome public comment from all interested individuals and organizations.

What pressures or challenges do accounting professionals face today in terms of acting ethically?

JG: I think there is more demand on people’s time and attention. I think that’s important, because assessing the ethical dimension of a person’s behavior requires being reflective and thoughtful. And to the extent time demands are higher, it could restrict people’s ability to consider their situation, and assess aspects of what is going on with their job.

Another major challenge is the increase in regulatory oversight, which presents challenges and pressures, but is a fact of life. Clearly, there is a social demand for more regulation of business and professions. And that’s not going to change anytime soon, I don’t think.

But back to this issue of bribes and corruption, there has been, in the last few years, increasing attention to this kind of thing. The laws are changing around the world about what kinds of payments or inducements can be given without violating laws. So the social norms around the world on that particular issue are changing rapidly.

To what extent do you think that the board’s work will be influenced by the laws and the regulations and the pace at which they are changing?

JG: That’s a really good question because an ethics code is more than just “don’t do anything illegal,” because then our Code could be very short. It could be one sentence long. People generally recognize that a code of ethics is different from a legal code. The Code holds accountants to a higher standard than the legal standard in their jurisdiction. But with the laws and regulations changing over time, how we respond to or even lead the thinking on those issues is very important. As the laws change, the Code has to reflect, and I think will reflect, the current, generally accepted world view on the issue.

What do you see as the key factors influencing the development of global ethics standards in the future?

JG: I think one of the factors is more attention and interest in regulatory oversight and legal requirements. That impacts the Code, of course, and the Ethics Board. It also increases our visibility and the importance of demonstrating our commitment to the public interest.

About the “We Are IESBA” Series
The purpose of this series is to bring the work of the IESBA to life, adding context and color to the people who carry out the activity of ethics standard setting for the international accountancy profession. The series aims to further increase the transparency of the board’s activities. Transparency is written into the board’s due process, and indeed, into its operations. The IESBA’s agenda papers and meetings are public (you can register to attend and observe any meeting, or listen to meetings and summaries via our iTunes channel). To learn more about the board, follow along via Twitter and email: Follow @Ethics_Board and subscribe to IESBA eNews. For additional developments related to ethics and other areas of the profession, subscribe to topics from the Global Knowledge Gateway.