Ethics and Suspected Illegal Acts

I recently attended a roundtable put on by the International Ethics Standards Board for Accountants (IESBA). The focus of the roundtable was proposed rules on reporting of suspected illegal acts by their clients and employers. On the surface this sounds like a no brainer – of course professional accountants should report illegal acts – but as usual, it is never that simple. Here are just a few of the complexities.

Are professional accountants supposed to be experts on all types of illegal acts? It’s one thing to ferret out fraudulent financial reporting. That is what a CPA is an expert at understanding. But what about areas that the CPA is not an expert such as employment law or OSHA violations – are CPAs expected t report any and all suspected illegal acts even in areas they don’t fully understand?

What if you think something might be wrong, but you are a junior accountant in the group. Should you report it anyway? What if you don’t have all of the facts that might be known to those higher in the chain of command that would clear up any concerns you might have? What if they don’t share that information because it is highly sensitive for other reasons and only those who need to know if the corporation are told? By bringing your concerns to a regulator you will cause needless activity in responding to them and maybe harm your employer’s competitive position.

What if you are hired to perform forensic work to evaluate the situation so the client can decide what to do? Would a client be willing to higher you if they know you have to report everything you find to appropriate authorities. Its for that exact reason that the concept of attorney-client privilege exists. Are we has the accounting profession going to say ethically we can’t tolerate such a concept?

What if the reporting is not covered by whistleblower protection and you only suspect something might be going on – you aren’t really sure? Do you just take the risk and report it because that is what the ethics code says you have to do?

Ethics sounds easy – just do the right thing – until you get into real life situations where the right thing may not be obvious and could even be the wrong thing because you don’t know all of the facts. Ethics codes should be there to help you decide what the right thing is, not make it harder. The question about the IESBA proposals is which is it. If you want to see more go to the IFAC website and check out the exposure draft and comment letters.


The International Federation of Accountants (IFAC) Professional Accountants in Business (PAIB) recently held their Fall meeting in Beijing, China. Unlike New Delhi India which I visited in 2012, China is a thoroughly modern country in every way. The infrastructure is amazing, but it is so much more than that. The professional accountants I met understand their businesses, the global economy and the important role PAIBs can play in the future of both.

The China Institute of CPAs (CICPA) has over 200,000 members and is likely to rival the AICPA for the largest professional accounting body in the world in the next 10-20 years. Currently their focus is on developing a thriving and large public accounting industry. They are doing this through the resources offered by IFAC to every professional accounting organization in the world. IFAC sets international standards for audits, education and ethics. The CICPA has translated all of these into Chinese (no small feat) and has used them to create a true profession from nothing in in 25 years.

While the CICPA is not yet focusing on PAIBs, roughly half of its members are PAIBs. Those members are much like the AICPA PAIBs until a couple of years ago, a large unheard, under-appreciated section of membership. The AICPA took decades, but has finally delivered with the CGMA. The recognition and resources now afforded to PAIBs in the AICPA are only rivaled by those offered to PAIBs in CIMA, because after all we are all CGMAs – 140,000 strong. But if China can create an accounting profession in 25 years, then I have no doubt once they put their minds to helping PAIBs, they will do so with the same speed and efficiency that has propelled them to international prominence in everything else they do.

For now we are number one, but it is going to take significant continuing efforts by staff, volunteers and every credential holder to ensure that CGMAs remain the best Professional Accountants in Business.