Ep 16: International ethics — Why should U.S. accountants care?

July 13, 2020

Listen as Diane Jules, deputy director of the International Ethics Standards Board for Accountants and Ellen Goria, associate director of the AICPA Professional Ethics Division, discuss the board’s goals and the relevance of the board’s work to U.S. accountants.

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Transcript

Diane Jules: As I interact with my colleagues in the U.S., one of the questions I typically get is “Why should a U.S. accountant follow IESBA’s work at all?” And when I hear that question, I smile and I say to them, “Accounting is a global business and the accounting profession is global and there is a need to have high quality global standards to guide the behavior of professional accountants around the world to ensure that there’s a consistent bar to ensure that they’re committed and they’re serving the public interest.”

Introduction: That was Diane Jules, Deputy Director of the International Ethics Standards Board for Accountants, or IESBA, is and this is Ethically speaking the podcast of the AICPA Professional Ethics Division.

In this first of two episodes. Diane talks with Ellen Gloria, associate director of the ethics division, about IESBA and why U.S. auditing and accounting professionals will find it helpful to stay current with IESBA's activities.

Ellen Goria: Good afternoon. Diane thank you so much for joining me today to talk a little bit about the ethical responsibilities of professional accountants, especially in this tricky time of the pandemic. I was wondering if you could maybe give us a little bit of a background about the board and what it does.

Diane Jules: Yes, thank you so much. And thank you for having me. It's always great to talk to you and you know in this very difficult time I do say when we all have to be physically apart. It's always great to connect. So thank you for that, glad to talk about ethics and glad to talk about the International Ethics Standards Board for Accountants.

The organization is based in New York. It’s an independent stand, which is subject to oversight from the Public Interest Oversight Board and in terms of what the board does it responsible for developing ethics and independence provisions. Really everything that goes into the International Code Of Ethics For Professional Accountants, including the International Independent Standards.

The standards apply to both professional accountants and business as well as orders and other professional accountants in public practice. Another thing that the board does is that it is actively promotes awareness of these ethics and independence standards and overall good ethical practices across the world and occasionally there's a need to debate about some of the more tricky issues.

Ellen Goria: Okay so Diane. So it sounds like it's a pretty broad group of folks that are involved with the board. Can you give us a sense for the composition of the board and who all is involved?

Diane Jules: So the board comprises 17 individuals with a diverse background. They’re also diverse in terms of geographic locations and the experiences that they bring to the table There are about five academics and researchers and also just accountant educators, I could call them. We also have academics. We also have audit committee members represented on the board as well as attorneys, former regulators, small and large firm practitioners. They have experience in ethics and independence as well as tax audit and assurance. So that gives you a flavor to that background from an experience perspective to some geographic location and we, the board members come from the six of the major continents and 11 countries represented. I'm not going to, if you if you would like to think I'm happy to say the different countries, but probably we could do that at a later time. And there are six women on the board. I'm really proud of that. So in terms of gender representation we have as well.

Ellen Goria: Excellent.  You know, something else that our listeners might be interested in is understanding a little bit about the underlying process that goes into setting an ethical standard. Could you give us a sense for what's involved?

Diane Jules: So in terms of describing the points process I described the board’s work style I'd say as collegial and collaborative in terms of the approach. Most of the board’s work is processed by small group of individuals board members who call them a working group. At this time, we have about 10 or so we'll keep working groups and task forces and all of the board’s work is done in a very transparent process. So the board’s deliberations are all public anyone who's interested in observing is able to just register. There is also the summary discussions of the board. So, you know, always, there's always an opportunity to review some of the key decisions that are made.

And the other thing, and I would like to say about the bullet points processes is informed by the public. Before a a project is taken on there is a consultation process to really inform the priorities of the board and that's typically the full most strategy work plan. And then once we get the input on that strategy and work plan events become formalized and it's publicly available on the board’s website so anyone can find it and that strategy and work plan sets out the specific projects, the approach to the general approach that will be taken for the project and under specific timeframe that the board into space will be done as far as the stages of projects, I'd say I think of it in three stages, their stuff that's typically the information gathering stage way by this bit of research that's done to really understand the underlying issues and that's typically at a global level, to really as, as you would expect, and it involves engaging stakeholders from diverse categories so stakeholders to understand it particular perspectives on whatever the issue is.

And then, of course, once that information gathering stage is completed, then it's about synthesizing the issues and studying to inspect to figure out a way forward. And that's once that is done then the approach and timeline for the project is set out in the project proposal.

And then again that project proposal is on our website. And of course, then there's the exposure phase, which really is when it gets into the drafting of proposed revisions to the code. And then, once again, that's an opportunity where these proposals go out and there's an opportunity for public comment.

Then the board deliberates and carefully considers the feedback received and revises the proposal based on what we heard from the public. So lots of great opportunities to receive input from the public and all stakeholder groups in progress into changes.

Ellen Goria: Sounds like it’s a pretty intense process. Are there specific challenges that you would say typically are encountered in international standard setting?

Diane Jules: It's no different from, you know, standard set in the national level in that some of the projects that we work on, particularly the ones that some of what we've been working on now, for example, NAS and fees. The issues are telling their public interest to shoot their varying views about the possible approach that the board should take and what's in the public interest and maybe I should have mentioned that and an overarching filter that drives the boards work is just thinking about what's in the public interest. In progress in this work, determining what's in the Public Interest could be quite difficult and not straightforward. I should say is not very straightforward because there are so many variables to consider.

The most difficult challenges are related to figuring out what's in the best interest of all these different stakeholder groups and having regard to, you know, the investor, you know what the investor would like to get the users of financial statements and so forth.

Ellen Goria: Great Diane. So how about if you wanted to actually monitor and figure out what is going on by is what is it that someone in the US could do to really understand and follow both projects.

Diane Jules: Thanks for that question. You know, it's funny. as I interact with my colleagues in the US. One of the questions I typically get is, why should the US accountant and, you know, follow this work at all.

Diane Jules: And when I when I have that question. I typically smile and I and I typically you know explain to them that you know accounting the global business and the accounting profession is global and there is a need to have high quality global standards, including a code of ethics to really guide the behavior professional accountants around the world in order to ensure that there is a consistent bar, by which you can, you know, ensure that they are committed and they're serving the public interest.

So that's typically what I told my friends, but I know that you are closer to this than my friends who will also, you know, they when I tell them I’m a CPA, they think, you know, I do taxes but for experts in the field who are wondering what is the roll in all of this I'd say that the code is adopted by many G 20 jurisdictions, as well, one of them being that the US. uses the code of ethics and it's also the code of ethics is also adopted and used by the firms of members which is the largest, the largest firms that do transnational audit.

So from that perspective that with the code being the foundation for ethics and independent standards are so many jurisdictions and professional accountancy organization.

It is definitely worthwhile to monitor the activities of the board because ultimately, they will inform the activities of national jurisdictions as well. How, can that be done? Well the board process is quite transparent almost everything is available on the website, including the board meeting agendas, the minutes of those discussions, you can actually listen audio recordings that are available on the board website all the consultation papers and exposure draft are publicly available, we invite any member of the public to comment on the board’s work.

And more recently, we've been doing webinars. Hosting webinars to promote awareness of the work that is to really get people outside of the profession, who benefit from the work of professional accountants informed and engaged on some of the issues.

Making ethical decisions can be hard sometimes, especially in tough times. Like, like now. So the more people will understand what the ethical responsibilities are, the more we can support each other. And I think, you know, that's no different for Professional Accountants, I think we all need support to do the right thing.

Ellen Goria: Absolutely.  you know, as a member body of IFAC, our goal at the AICPA on PEEC is to make sure that our standards are as restrictive as the IESBA’s you know there are some situations, perhaps, where, because of the environment in the US, we might need to be more restrictive. And then probably this would go to the point you were making earlier about the challenges. There are some situations where, because of the legal constraints in the US we do find it difficult to adopt a standard or a portion of a standard or something so, as a member of IESBA, we think it is critical to our members, and I think this is a perfect time to reflect on it.

We're all forced to be working at home here in the United States and abroad. And I think one of the things that we will see from this pandemic is how easy it is to work in a remote capacity. And so I do think we will probably see a lot more firms getting involved internationally and it'll make the IESBA code and the convergence with AICPA code that more important for those AICPA members.

I guess something that resonated when you were speaking Diane was about the fact that there are just so many different countries represented on the board, you know, so many different countries that the board consults with on its various projects and I thought it might be interesting for our listeners to understand a little bit more about the staff itself because the next topic we're going to get into is something that staff put together to really help the profession and so can you give us kind of a little peek behind the curtain into the staff?

Diane Jules: Oh, of course. I'm happy to do so. And, you know, as you mentioned, the countries. I can't help but you think that your listeners might also be interested in knowing that in North America, we have board members representing the US and Canada, South America, we have a board member represent in Brazil. And Europe, there's a representative of course the chairman is from Greece and we have board members from the UK, Brazil, Germany and Asia, we have a representative in India Singapore and Japan. And of course, we also have a representative from Africa, specifically in Uganda. I was just thinking, you know, it's reflecting on our staff and how diverse this vast background is: I think it's so apt that that have a diverse staff with, you know, it's five of us are small team. Being from St. Lucia born and raised. All of my professional experiences in the US. As I said, we have five technical staff. Three of them are accountants. Two of them are attorneys. We have someone from Hungary. Someone from the UK by way of Malaysia. And we also have someone from Hong Kong and Australia on our team as well, so a very diverse background.

The board level as well as the staff level that you really give that global feel in terms of the way we work. And the perspectives that we bring, which I think is quite important, important together international standards.

The team, very much like the board, we have a very collegial culture.

We work very closely with each other because many of the projects that we working on are interrelated and a good example of that is the essence these projects: the definition of public interest entity that’s definitely a project that I'm that ties in very nicely because it goes into the applicability of these NAS and the related provision so yes it's very collaborative.

We’re supported by IFAC as well. And the IFAC provides the communication support to the IESBA as well as the HR and IT support. When I think about it, Ellen. Sometimes I wonder how similar PEEC and the relationship between PEEC and the association and of course IFAC. I don't know if you want to compare and contrast because you may know a little more.

Ellen Goria: Sure. Well, sure. You know what's interesting from PEEC’s perspective. We do try to have a very specific kind of ratio, per se, of the individuals that participate on PEEC. So we'll have a certain percentage for large firms will have a certain percentage for small firms, then we'll have a certain amount in between. So the medium kind of right below those big four. So we do have a very diverse mix. We do that very specifically. So as we are setting the standards that we make sure the domestic standards that we're taking care of all lines of business.

The other thing that we do have on PEEC is we have public members. So individuals who are completely uninvolved with the accounting profession. Currently we have two individuals that are public members.They both happen to come from a legal background. One was more focused in the securities area. So he brings that perspective, which is extremely helpful when taking in the public interest, the other individual, he is some who has a legal background as well with the Federal Trade Commission many, many years ago. So he brings a real interesting public perception perspective, and, you know, everybody's really incredible contributors.

Diane Jules: Thanks for bringing that up. I should have mentioned that when I talked about, you know, our board and the composition of our board because that is something that is very much that we definitely have in common. We have six public members. And similar to how you've described, they are not affiliated with the profession and all that. In terms of the background. One of them is an attorney, former attorney former regulator and he's based from the UK. Then we have one who's a former Auditor General of Australia. And then we have an academic as well, actually, two academics and an audit committee member so yeah I think you're absolutely right when you say people are having representation from outside of the profession does bring a different dimension to the discussions of the board and it's for a profession that some of these have been criticized sometimes is like, you know, speaking in having standards that can only be understood by accountants. It's great to have these individuals at the table because they challenge us to write in plain English.

Ellen Goria: Yes, they do. They really do. 

Well, thank you very much for joining me today. This has been incredibly enlightening and I'm, I'm really looking forward to our next podcast we will talk about COVID 19 and the impact on the profession.

Diane Jules: Thank you Ellen, I very much enjoyed this. It's always great talking with you and I look forward to coming back again and sharing some of what we've been doing in response to COVID 19  at the staff level as well as how it has impacted the board's work.

Ellen Goria: Thank you.

Conclusion: As always, thanks so much for listening. In the next episode Diane and Ellen will discuss how has affected IESBA's operations. No doubt you'll hear some familiar topics and they'll also talk about IESBA's helpful response to the pandemic, a series of Q's and A's that address ethical implications of the current environment from a high level. That episode will be available at aicpa.org/ethicallyspeaking. You can also use the subscribe links on the show notes page to get notification of new episodes as they're published.

If you have ethics questions, call our hotline at 888-777-7077 option 2 then option 3. If you'd like to comment on this episode, or if you have ideas for future episodes email us at ethicallyspeaking@aicpa.org.