“Where the mind is without fear and the head is held high, into the heaven of freedom my father let my country awake”. These were the words of Sri Rabindranath Tagore. These words assume relevance in a scenario where there are many areas where the professional faces challenges.
We all know that with great power there comes great responsibility. The leaders should be the persons who set the standard of truth wherever they lead. The moment people take leadership positions, they have an opportunity to place the highest premium on truthfulness. Recent cases of fiscal malfeasance in Indian Corporate world illustrate the need for every form of communication leaders put forth to be an accurate and honest representation. Leading by example would be one means by which we can create the next generation of leaders.
What is meant by ethics?
If we go to Wikipedia it says” Work ethics is a set of values based on hard work and diligence”. While at the same time furthering the legitimate aims of the clients / employing organization.
The fundamental principal parts of code of ethics could be the following:
Integrity: In ethics, integrity is regarded as the honesty and truthfulness or accuracy of one's actions. Integrity can be regarded as the opposite of hypocrisy. As such, one may judge that others "have integrity" to the extent that they act according to the values, beliefs and principles they claim to hold. For example, if you exaggerate a client’s problem to increase your income, you run into problems. Not disclosing a material fact is also having lack of integrity. By being assertive one can bring forth the courage of putting ones view confidently without fear and not to dominate others/ undermine their point of view.
A Chartered account should be straightforward and honest in all professional and business relationships. For example, he should not be associated with information which they believe contains a false or misleading statement.
Objectivity: Objectivity is a state of mind, a quality that lends value to a member's services. It is a distinguishing feature of the profession. The principle of objectivity imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest.
Members often serve multiple interests in many different capacities and must demonstrate their objectivity in varying circumstances. Members in public practice render attest, tax, and management advisory services. Other members prepare financial statements in the employment of others, perform internal auditing services, and serve in financial and management capacities in industry, education, and government. They also educate and train those who aspire to admission into the profession. In providing all the services, a member should maintain objectivity and avoid conflicts of interest.
A CA should not allow bias, conflict of interest or undue influence of others to override professional or business judgments.
Professional competence and due care: In order to be competent a professional should acquire the knowledge and skills for job. He should be aware of the technical and professional standards/ developments. Keep up with the current developments in law and practice. A person who is not updated would be obsolete within a year. Add to capabilities by joining some additional courses, for instance, IFRS training. The assignments whether related to financial statements, or issuing of opinions should be done carefully, on a timely basis. The limitations should be communicated to the client or other persons who depend on our work. For instance if it is not possible to change from abatement for ongoing construction contracts to composition under works contract, tell in so many words, even risking displeasure of the client.
A CA has to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service. This requires him to act diligently and in accordance with current technical, professional and legislative requirements when engaged in professional activities.
Confidentiality: The chartered accountant is privy to a great deal of information relating to financial statements, records, forthcoming mergers/acquisitions by listed companies. There would be an unspoken obligation of non disclosure of details acquired in course of work by the CA. Remember, the disclosure can be done when the client has instructed to do so or there could, however, be times when there is a legal or professional duty to disclose information to third parties (for example where a criminal act has been committed).
But at every point care should be taken to ensure that the information is not used for any personal advantage of the professional, pecuniary or otherwise. This aspect should also be built into the social environment so that the professionals are equipped to preserve confidentiality.
An accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession.
Professional behavior: The laws/ regulations are meant to be followed. Strive both in office and personal life. Do not discredit the profession while promoting oneself. Do not make exaggerated claims about self and disparaging references to others or their work. Do not make unsubstantiated comparisons. The best approach is to take responsibility rather than shirking.
Effective professional through his behavior uses the group efforts to improve things. Because professional believe in other people’s ability and potential, delegation is not an issue so their style of supervision is adapted for each individual. Do not focus on people’s weaknesses but instead, try and develop their strengths. Therefore be positive and have such a strong belief in people, that others live up to your expectations.
What is the take away from the above?
Can we answer the following questions?
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Will you be the same person at work? At home? In the community?
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Will you have the courage to live out your values when there is pressure to compromise or rationalize?
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How do your values contribute to the common good?
What Threatens the
Self Interest: Placing your organization first. The selfishness should be only to extent of striving for personal/professional improvement, but not at cost of others. Would you take a pay cut if it means the very survival of your organisation and its stake holders?
Mentor and develop people whom you believe will rise to future leadership roles. Do not view them as a competitive threat, but rather, nurture them as protégés. This will ensure that your organization will continue to thrive even after you're gone. Remember it could be someone else’s dream too.
Self Review: Maker/ Checker: When a previous decision is to be re-evaluated - you cannot audit your own work. Where a professional begins to believe in his infallibility and perpetuates wrongs, example signing a Balance Sheet that is fudged, remember that you are not just a person earning a livelihood. You are being relied upon. If you can act as a checker and start introspecting honestly on the impact of actions, it helps to be on track.
For the organization investigate the failures that your team has made, but steer the focus away from blame. Instead, focus on how to improve the circumstances so that those same mistakes can be prevented.
Advocacy: If the CA promotes or supports an opinion to the point where subsequent objectivity may be compromised. In such case, share the pride you felt in building your organization. Invite diverse people to express their viewpoints. Ask people to share their opinion. Refrain from "knowing" the right answer already when you hear people talk. Invite shy or quiet people to speak up. Ask your team to identify how its project helps the common good.
Many leaders mistakenly ask the same trusted clique for advice repeatedly, rather than looking for new ideas.
Familiarity: Where an auditor has shares in his audit client - and, in such cases, the only option is to walk away, to resign or to refuse the assignment or hand over to another. The solution-assign leadership roles to everyone on your team. Delegate specific tasks to certain team members, give them tools, resources and boundaries, and then get out of the way and allow them to be the leader over their portion of the project. This is known as "collective leadership." This helps to avoid stagnation of opportunities as all members of team consider the growth of the organization as their own growth. They would have a larger pool of clients, leading to not overly relying on a single client. Be gracious with various stakeholders in your organization/team. Ask yourself-Is the team collectively responsible for the project's outcome?
Think about the results that your team will achieve - not about the results, fame or promotion that you personally will achieve. Do not let assignments to be influenced by relationship equations with client/other stakeholders.
Intimidation: Personal / other loss: Do not expect your way to be accepted as the right way. A CA may be stopped from acting objectively by obstacles-challenges, threats. Let others say what they wish to. If in industry, be the whistle blower on an organization that is only window dressing its financial position.
When leaders try to live by different rules as against those that apply to the rest of us, they lose their power and ultimately fail to achieve what is best for the group as a whole. As a consequence, there must not be a different code of morality for leaders. Leaders who are willing to deviate from ordinary moral rules aren’t leaders for very long.
Can we examine what could be the circumstances when this could happen?
What are specific threats?
Loans, Guarantees, Incentive arrangements, Share of profits, Personal use of corporate assets, commercial pressure from outsiders: The loans maybe arranged for family members of the auditor, who knows that loan amounts are being siphoned off to companies owned by a certain group in company. There could be out of book incentives, use of company car to auditor family, with driver, to give a small instance. In return auditor maybe attesting true and fair view, even where the going concern concept is under threat.
False / Misleading claims – made/ tactic confirmation: Where auditor is promised that in return for not making an adverse report on false claims of services provided to off-shore, he would be given an assurance engagement opportunity in another company.
Influencing a transaction, long association with business contacts, receiving gifts/ preferential treatment: The auditor may be auditing a certain public company for long, and he may be asked to overlook certain amount of stock pilfered by management group as normal loss, in process. His acquiescence may lead to his appointment as an independent director a few years down the line, after retiring as auditor.
Dismissal/ replacement: Where there is undue dependence for gross billings/total fees on a certain client by auditor, he may compromise his independence and integrity. The auditor may be threatened that if he makes a qualification in audit report as to reliability of certain debtors, he may not be reappointed.
Possible Value adds for Leaders:
Focus on regulation – our main role is regulation as per the CA Act: The Chartered Accountants Act, 1949 and the Schedules to the Act set out the acceptable forms of behaviour of the members of the profession. The Conduct of the Chartered Accountants is judged under provisions contained in the Chartered Accountants Act, 1949 and the Schedules thereto; setting out different forms of behaviour which would constitute professional or other misconduct under the Act. The Chartered Accountants Act is framed for the regulation of the profession of Chartered Accountants.
Section 22 of the Chartered Accountants Act defines and describes what constitutes `professional misconduct'. Under Section 22 of the Act, the expression `professional misconduct' shall be deemed to include any act or omission specified in any of the schedules.
The two Schedules are distinguished on the basis of gravity of misconduct described therein. The misconduct listed in the Second Schedule is understood to be grave and serious prescribing higher punishment.
Focus on students - also on producing CAs who can serve the industry: CA is the highest possible degree in the field of Accountancy and Auditing which makes a winner for life.
Dummy training is an unethical practice against which students must be educated. It means getting enrolled with a Chartered Accountant as a articled/audit clerk but do not work for him rather, either sit home and study or work somewhere else. My answer to this is that articleship is a very important phase in a CA’s career life. With all its pros and cons, it is destined to take you long way as a professional and plays a very important role in defining a CA’s career path. Many CAs get absorbed in the companies. In such cases, auditing companies during article ship stands in good stead. This might serve as a bonus for someone who has done his article ship diligently.
Further, if such thing is found out later, the students might face the threat of the registration being cancelled.
Focus on knowledge – new and updation: Ensure that there is adequate knowledge of the Finance Act changes, impending DTC, GST, latest case laws. Make time each date to improve skill sets atleast for an hour. Enroll for study circle membership, attend CPE seminars.
Focus on members opportunity – incidental function: The by product of ethical practices is more reliance on CA’s which leads to more professional opportunities. When the work is its own reward, the accolades would follow. Do not resort to undercutting as this brings down the entire profession.
Empowering the executive – Delegate - Select Competent persons not Yes men: Develop a second rung of leadership. This can involve:
- Clearly identify how delegation fits into your job and how it can make you more successful. It saves your time and you can do more.
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Identify different ways of delegating tasks. Delegate the tasks based on skill sets of group
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Give better instructions for better delegation results. Elaborate on what is required. For instance, say scope of work, time frame, possible sub-delegation.
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Ask better questions and listen more effectively. Ask why a particular option was chosen. For instance, ask of subordinate why discuss job work concept where the entire transaction is on sub-contract basis.
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Recognize common delegation pitfalls and how to avoid them. The most common is to put wrong person to a task. For instance, giving a indirect taxes assignment to a international taxation specialist.
Disagree but not disagreeable: Learn to disagree without alienating group. [ This maybe very very important considering that presently some of us spend huge amounts of time on what is recorded, whose photo comes in the magazine and many many minor issue rather than focusing on what we are to do]-
1. Ask questions until you understand the others point of view.
2. I would never tell you to discard your convictions, but do remain open to suggestion, and do seek clarity.
3. Use phrases like “In my opinion,” “I believe that,” or ”In my experience,” to make it clear when you’re expressing a matter
4. Effective non-verbal communication sets the stage so
· Smile to communicate friendliness and acceptance.
· Sit up straight to project confidence.
· Keep an open body posture (no crossed arms or legs) to communicate openness.
· Speak in a relaxed manner (mind the tone of your voice!) to project calm and clarity of thought.
· Make appropriate eye contact.
· Nod when the other person speaks – this communicates understanding, not necessarily agreement.
· Another trick to communicate understanding without compliance is to periodically say, “I understand,” or, “I hear what you’re saying.”
· Unless the other person a difficult personality that forces you to interrupt to get in a word in edgewise, let him finish his thoughts before offering yours.
Have a measurable target and monitor the same: Ensure that you get the group to reach the goals set. For instance, the course material should be ready in 15 days from date of announcement.
Nurture academics/ faculty: Ensure that the faculty/academics are given due importance. This is because they would train the students, who are going to be CA’s tomorrow.
Avoid tag of event manager- follow the CPE advisories in form and spirit: Ensure that CPE seminars are attended/approached as an opportunity to broaden intellectual horizons. This would enable a better practice.
What are the possible advantages / success through ethics?
Other than being the- right thing: Ethics helps us to keep moral high ground. Our work is stronger as it is right.
Increased client [stakeholders] loyalty: The client would trust us, get us good profile, helps in better practice.
Enhancement in image/ brand of branch SIRC and finally ICAI: The value of SIRC and ICAI would improve. More persons would want to enroll into the profession.
Corporate Citizenship enhances professional performance and higher returns: The performance improves due to corporate backing. The results for social growth would be better.
More effective recruitment/ retention: There would be better focus on staying on in organization, which would be more ethical in line with its employees /team.
Better morale, loyalty, productivity: Where morale is good, this translates into better work place, knowledge sharing and better growth of organization and nation building.
This article is a compilation of some thoughts/ articles/ observation in the past 15 months in a position of leadership. It attempts to make the subject of ethics a little more understandable and clear. It is only meant to lead to a questioning by all of us as to whether what is being stated is true or not, would it be useful in self development, would our ICAI rise to higher levels if we were to follow some of them. All those questions are left to us individually to decide.
Acknowledgements to CA Roopa Nayak for her efforts.
CA Madhukar N.Hiregange
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