Ethics in Accounting

You know the routine: A scandal hits the media (corporations inflating projections; TARP money; the notorious Bernie Madoff; securities fraud; you name it) followed by headlines that scream out about the injustices and proliferating greed of our culture. Naturally, shareholders, taxpayers and those who play by the rules get angry, and so the rules of business get reinvented … again.

Such is the case with “Business Ethics”. Unfortunately, when certain modern philosophies grow in popularity, people tend to toss around the words and throw around the ideas—a lot. Yet when it comes to actually putting these philosophies into practice, it turns out that talk is, well, cheap. But ethics shouldn’t be an item that’s taken lightly. At least that’s what taxpayers believe.

Over the past decade, the Feds, as well as state legislature, have instituted a plethora of new reforms for businesses and their accounting practices. And thanks to some poor choices on behalf of the nation’s largest bankers and brokers combined with the wariness of the American public relative to tax preparation, the IRS is planning to raise the bar on ethical accounting standards, too.

A very visible consequence of these enforcements is the contentious Sarbanes Oxley Act of 2002 (SOX), which as of this podcast, is leaving many public company non-accelerated filers befuddled and ill-prepared. (If we go through every detail of SOX, you better pour yourself a drink and pull up a chair.) To get to the crux of my point, however, are the certain aspects of SOX, Sections 404 and 802 in particular, which affect external auditors, holding them liable in the event of any inaccuracies. Even scarier, the fallout of such false reporting or non-compliance could mean fines and imprisonment for the company’s senior management. The SEC isn’t joking around anymore, and neither is the public at large.

You might be aware that prior to this year, anyone could prepare a federal tax return for anyone else and charge a fee without the need to meet any government or professionally mandated competency requirements. But that changed after a study recently completed by the IRS.

Conducted by the IRS Oversight Board, the study found that 78 percent of taxpayers deem it “very important” that their tax preparers meet ethical behavior standards, while 73 percent rank competence standards as “very important”. Correlating with the recent slew of business ethics issues, or lack thereof, the former number is up from 62 percent just two years prior; the latter jumped up from 62 percent in 2007, but has remained steady every since. Additionally, more than half of all respondents surveyed indicated their confidence in tax preparers would vastly increase if the preparer was subjected to federal or state regulations and licensing, including an increase in required CPE credit hours. This is opposed to only 39 percent who would be swayed by industry association-imposed regulations and licensing.

The consequence? A sweeping new effort that brandishes tax return preparers with registration requirements (which all of Bonadio’s CPAs meet), education mandates, and a broadening of the IRS’ power to suspend or otherwise discipline tax return preparers who engage in unethical or disreputable conduct.

What this tells me is your average taxpayer ranks ethics just as high as competence, if not slightly greater, and is relying on the government to create the de facto standard. While we wait for the government to spread their tentacles into yet another industry, the question remains: How should we in the accounting industry quell fears and instill trust in our current and potential clients?

Let me start by saying I’m a huge fan of the “golden rule” of accounting: Be honest and factual. It’s simple and straightforward, and in a perfect world would be the only requirement.

But it’s not a perfect world, and I’d like to share some of my principles of how Bonadio strives to deliver the highest quality business advice and maintain the intangible: Ethics.

In alignment with the IRS Oversight Board’s survey, we rigorously maintain our licenses and certifications, and support the highest levels of continuing education. We require our professionals to stay attuned to innovations in methodology and technology, industry and professional matters. In fact, our people receive a minimum average of 40 hours of training annually, and our subject matter specialists often receive in excess of 200 hours of education annually. I believe continuing education is an assumed basic, and if you’re not adhering to it, you’re either already behind the curve or you just don’t care.

More importantly, there is an underlying “code”, or belief system, in the Bonadio culture. It’s an acronym that reads, “P.R.O.M.I.S.E.”, and stands for People, Respect, Opportunity, Maintaining Balance, Integrity, Service & More, and Entrepreneurship. These tenets define how we interact with each other, our clients, and how each and every one of us performs our jobs. To sum it up neatly, it involves consistently exceeding client expectations -- particularly in regard to ethical behavior -- which creates a rewarding, positive professional environment, instills pride in our people, and gives them something to uphold. Essentially, one begets the other. That’s fine in theory, you’re thinking to yourself, but how do you ensure an action and outcome?

That’s where my Professional Excellence Team comes in. Another endeavor to stay abreast of industry trends was the development of this team, whose primary responsibility is to oversee The Bonadio Group’s quality control processes and procedures (this includes peer review and inspection). Headed up by Kristen Clark, our designated “Quality Assurance Partner”, this group also performs annual inspections throughout the firm and for all of our offices, ensuring the firm’s compliance with related requirements and laws, while researching all new technical accounting and auditing pronouncements. This information is then conveyed to the entire Bonadio team via ongoing training, feedback, and advisement.

The days of ‘wink wink’ oversights are over, and with or without a prompt from government, it’s high time our industry uphold certain standards. I have found that enforcing accountability in accounting within my domain, while remaining proactive to industry (and popular opinion) trends, has kept The Bonadio Group ahead of the ethics curve. I also believe our industry as a whole has the power to set the bar, so while we’re at it, we might as well set it high and show that ethics resides at the very core of being a trusted advisor.

I’d like to read your thoughts on ethics and accounting and how you make it a part of your culture. Add a comment and share your Viewpoint at http://viewpoints.bonadio.com