The modern workplace can be an ethical minefield. Take, for example, a friendship with a colleague whose work on a report includes numbers you discover don’t add up.
How can management accountants tackle this thorny work challenge? Written by the CIMA Professional Standards team and based on a realistic situation, the following is a practical guide to using the CIMA Code of Ethics (the Code) for good decision-making.
The scenario
You have been working for a regional hotel chain based in the south of England for three months. A friend working in the finance department recommended you for a job within that department and even helped you prepare for the interview. Thanks to their help, your application was successful, meaning the two of you are now working together as part of a small finance team. You get on well with the team and are enjoying the role.
The team is required to prepare a profit-and-loss statement for the company board. Your friend did most of the work in preparing this report. However, before completing it, they had to take emergency leave at short notice and may be away for at least a few weeks. Your manager has asked you to finalise the report so that it can be provided to the board within the next week. While reviewing the report, you notice discrepancies in the financial reporting between the cash flow analysis and accounts receivable. You decide to investigate further but are unable to reconcile the discrepancies. You try to cross-reference documentation used to inform the preparation of the report but find that key documentation is missing.
At this point, you worry that the content of the report may be unsubstantiated in parts. You are not yet certain if this is the case and, if it is, why. You also do not want to get your friend in trouble, especially as they helped you get the job.
The production of misleading reports can have significant financial implications. Investors and creditors would be at risk, and it also compromises the company’s financial health, putting employees’ jobs at risk. Depending on the circumstances, there may even be allegations of fraud that can have serious legal consequences. That is why it is important to have the facts before determining your next steps.
Ethical issues and guidance
The Code’s sec. 111.2, Fundamental Principle of Integrity, states that a professional accountant must “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”. As a CIMA member, you are bound by this.
Here are steps to avoid being associated with any misleading reporting:
Get the details. You should equip yourself with as much information as you can reasonably obtain before proceeding. Speak to your colleagues. They may be able to locate the missing documentation. Ask them to look at the discrepancies you have found to see whether they can provide insight, given that you have been with the organisation for only a few months.
Document your findings, including to whom you spoke, when you spoke, what was said, and any sources of corroborating documentation.
Escalate appropriately. Once you have further information, you may consider raising what you have found with your line manager. If you escalate the matter, make sure you do it appropriately, based on facts you could obtain. Remember, it is not your role to level accusations against anyone, but rather seek clarification on how to approach the discrepancies you have found. Your line manager will then be able to move it forward and take appropriate action.
Following your conversation, if you believe your manager is involved in any misleading reporting, you can consider escalating further.
Evaluate threats to Code compliance. CIMA members are expected to use professional judgement in complying with the Code. Using the conceptual framework set out within the Code will help you to identify and evaluate threats to compliance.
In this instance there is a familiarity threat, covered by Part 2 of the Code, sec. 200.8 A4. This threat arises where there is a “long or close relationship with a person or an employing organisation”. It is possible that your friendship might mean that you will be too sympathetic to their interests and so will want to avoid taking any action that might land them in trouble. Similarly, your friend might have an expectation that you would overlook a mistake (which could be a deliberate attempt to mislead).
In either case, whether there has been an inadvertent mistake or a deliberate attempt to mislead, it is important not to let that personal relationship cloud your professional judgement. The Code recognises that the familiarity threat can lead to a pressure to breach the Code’s rules and the fundamental principles. This is captured in Code sec. 280.3, which states that members must not allow “pressure from others to result in a breach of compliance with the rules”.
Manage identified risks. However, as set out in the Code, it is important to remember that the existence of a threat does not automatically amount to noncompliance. The crucial factor here is to identify the threat, evaluate its significance, and then put in place safeguards to eliminate the threat, or mitigate it, so that the risks can be managed appropriately. This can range from verifying the accuracy of the report yourself to escalating your concerns to management. It is helpful to begin with an open mind rather than instantly jumping to suspicions of fraud.
The Code’s Fundamental Principle of Objectivity requires that an accountant does not compromise their professional or business judgement because of bias, conflict of interest, or undue influence of others.
As difficult as it may be, do not let your personal relationship prevent you from taking appropriate steps. You have a responsibility that extends far beyond you and your work friend. As a CIMA member, you are bound by the Code and could face disciplinary action if you are complicit in misleading reporting. You should ensure that your name is not attached to this report if it continues to be misleading/incorrect.
Sec. 111.2 A1 of the Code suggests that a professional accountant may consider providing a modified report, return, communication, or other information. If you do this, you should keep a copy of your modified report to demonstrate that you have not been complicit in any intentional attempt to mislead. Similarly, keep copies of all advice given.
While you may understandably be mindful of your friendship, the reputational damage to yourself, the wider organisation, and the profession of breaching the Code could be profound and have far-reaching consequences.
Maybe the discrepancies are easily explained by some form of error or omission. However, you may find that the report is unsubstantiated and senior staff refuse to act. Furthermore, those senior staff may insist that you be complicit in misleading reporting. If a speak-up helpline is also ineffectual, then, having exhausted available resources, you may feel it is necessary to disassociate by leaving the role. As this is a drastic measure, you may wish to consider whether all reasonable and appropriate steps have been exhausted before doing so. It is always worth considering how you can be part of the solution before stepping away.
Resources
Resources on the AICPA & CIMA website include the Ethics Checklist. This can help you decide next steps if you are unsure how to proceed in the face of an ethical dilemma. For further guidance, get in touch via the Ethics helpline and support. While AICPA & CIMA staff are unable to give legal advice, they can talk through your concerns and direct you towards relevant sections of the Code and available resources.
— Xose Lumor is manager, Advocacy and Professional Ethics–Management Accounting at AICPA & CIMA, together as the Association of International Certified Professional Accountants. To comment on this article or to suggest an idea for another article, contact Oliver Rowe at Oliver.Rowe@aicpa-cima.com.
