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Accounting ethics and professional judgement

What are your ethical obligations when your client has been given an official 'amnesty' for past behaviour? An innovative initiative of the Australian Taxation Office, Project DO IT, is shining a light on this issue. The project allows taxpayers who have undeclared offshore assets and income the opportunity to declare them by December and avoid high penalties and the risk of criminal prosecution. This poses a range of ethical considerations and issues of judgement for professional accountants the world over. Let me explain.

Becoming a professional accountant and a member of a professional body, like CPA Australia, is acceptance that you will act in the public interest by complying with the code of ethics.

The first paragraph of IESBA's Code of Ethics for Professional Accountants starts with: 'A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. Therefore, a professional accountant's responsibility is not exclusively to satisfy the needs of an individual client or employer.'

Professional accountants have to identify, evaluate and address any action or situation that threatens compliance with the fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.
If the threat to compliance with the principles cannot be eliminated (or reduced to a level where a reasonable and informed third party would conclude that compliance with the principles has not been compromised), then we cannot remain associated with the action or situation.

The IESBA's code requires professional accountants to review whether the actions and activities of a client (such as illegal activities or questionable issues) threaten compliance with the principles before accepting a client and periodically review existing clients for these issues.

Project DO IT, and voluntary disclose schemes in other jurisdictions, call for members to exercise professional judgement.
Of course, members cannot knowingly be involved in any activity that does not comply with the law. But when our members are not aware of their clients' undeclared offshore income or assets, what then?

Should our members leave the client or should they continue to provide professional services to someone, who without their knowledge was doing something that was not in compliance with the law?

I do not think CPA Australia nor the global accounting profession can or should provide a rule on this one.

Our members need to look at the specific circumstances and ascertain whether they pose a threat to compliance with the fundamental principles and whether the threat can be eliminated or reduced to a level where compliance is no longer compromised. This determination would need to be based on professional judgement and have regard to the responsibility to comply with the principles of the code and other relevant professional standards. Our members would need to determine issues as broad and far reaching as whether unethical/illegal behaviour is likely to continue to occur, the reasons it occurred and whether the client is committed to comply with the law.

Professional accountants should also look at whether continuing to offer professional services to clients who are voluntarily disclosing under project DO IT is in the public interest. Do we want clients who are taking steps to comply with the law to be excluded from getting professional services from professional accountants?

Overall, professional accountants serving clients who are declaring offshore assets or income, under project DO IT, have to look at the specific circumstances and satisfy themselves (and be sure that a reasonable and informed party would also be satisfied) that continuing with the engagement will be in the public interest and that they will themselves be able to comply with the code.

These are not simple questions to answer. Professional judgement is what is needed here. It is the cornerstone of what makes us professional accountants.

Alex Malley's previous blog post
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