Ethics in action: Self-interest threat

The modern workplace can be an ethical minefield. This monthly column helps you tackle the thorny, but very real, challenges that management accountants face in the workplace.

Written by the CIMA professional standards team and based on realistic situations, the following is a practical guide to using the CIMA Code of Ethics to guide good decision-making.

The scenario:

You are an accountant at a company that supplies goods to industrial bakeries. You are responsible for preparing the monthly accounts for the baking ingredients division of the business.

Along with a few other accountants, you are eligible for a quarterly bonus. The only requirement for you all to achieve the bonus is that the company stays within the quarterly budget. You suspect that another accountant, also a CIMA member, who is responsible for preparing the monthly accounts of the cooking equipment business unit, has been manipulating figures relating to their business unit to ensure that you all achieve the bonus.

Should you do anything about your suspicions? And are there any problems with the current system for achieving the bonus?

Ethical issues and guidance

The recently updated CIMA Code of Ethics applies to all members and registered students, including the other accountant in the scenario above. You suspect that the other accountant may be producing falsified or misleading reports.

The fundamental principle of integrity (Section 111 of the Code) requires that:

“A professional accountant shall not knowingly be associated with reports, returns, communications or other information where the accountant believes that the information: (a) Contains a materially false or misleading statement; (b) Contains statements or information provided recklessly; or (c) Omits or obscures required information where such omission or obscurity would be misleading.”

As the other accountant is a CIMA member, if your suspicions are correct, they will be in breach of the Code of Ethics. The ethics checklist can help you work through a plan of action. You should start by considering the facts. What is it that causes you to suspect they are overstating performance? Do you have any evidence of this?

A good next step could be raising your concerns with either your own or the other accountant’s line manager, providing any evidence you do have or making it clear that these are just suspicions. If you suspect that the line manager may not take action, you should consider using an internal whistleblowing or speak-up service, which will allow you to raise your concerns more formally. Our brand-new webpage on speaking up includes links to resources that can demystify the process.

As the other member may be in breach of the CIMA Code of Ethics, it may also be necessary to report your concerns to CIMA. This is explained in the Royal Charter, Byelaws and Regulations, with Byelaw 11 requiring members to “report to the institute any facts or matters which cause him [or her] reasonably to believe that another Member or Registered Student may have been guilty of misconduct”. More information about the conduct process and reporting suspicions is available on CIMA’s website.

The Code of Ethics outlines a number of threats that could affect the fundamental principles underpinning the Code. Section 200.8 A6 describes self-interest threat as: “The threat that a member could benefit, financially or otherwise, from an interest in, or relationship with, the employing organisation or persons associated with the employing organisation. Examples of self-interest threats include the following: “… (c) A member is eligible for a profit or other performance-related bonus, and the value of that bonus is directly affected by the Member’s decisions.”

As is stated in Section R200.8 of the Code, the existence of a threat alone does not signify noncompliance with the Code. The key is to identify the threat, evaluate the significance, and, if appropriate, put in place safeguards.

Evaluating this threat will likely involve looking at whether anyone without the vested interest of a bonus is involved in producing, checking, and signing off the accounts. This would help to safeguard against the threat.

If the current process does not seem robust in addressing the threat, it would be worth considering whether you are in a position to influence this. For example, could you work with others to implement a policy which ensures that someone else without a personal interest in the results has to sign off the accounts? You could use this as an opportunity to protect the business from future misconduct by helping implement a more fail-safe process.

— Bryony Clear Hill is the associate manager–Ethics Awareness for CIMA and is based in the UK. To comment on this article or to suggest an idea for another article, contact Drew Adamek, an FM magazine senior editor, at Andrew.Adamek@aicpa-cima.com.