Two years ago, this author was granted space in these pages to ponder the point of the accountancy profession (Tony Bromell and Martin Martinoff, “What Is the Accountancy Profession For?” February 2015, http://bit.ly/2vDiDxU). One of the points addressed was the public interest obligation that the profession has adopted. This article expands upon those thoughts, which are, if anything, more relevant in 2017.
The accounting profession’s actions to further the public interest take a number of forms, including developing technical and behavioral standards and guidance; establishing training, development, monitoring, and enforcement processes to help ensure that those standards are applied; and promoting thought leadership programs. The behavioral standards are usually referred to as codes of ethics or of professional conduct, and these codes usually refer to the profession’s public interest obligation; in the AICPA Code of Professional Conduct, for example, it is referred to in section 0.300.030. The Institute of Chartered Accountants in England and Wales (ICAEW), like the AICPA, bases its code of ethics on that of the International Ethics Standards Board for Accountants (IESBA) and also refers to the public interest in its own Code of Ethics. The words are slightly different, but the meaning is broadly the same—the accountancy profession as a whole has an obligation to the public interest, which means members do as well.
That is all very well as a fine-sounding general statement; however, what professional bodies do—representing their members as a whole—is not the same thing as what individual professional accountants going about their daily business of doing audits, accounts, or business advice can or should do. It is very reasonable for an individual professional accountant to ask, “What does that public interest reference actually mean that I, as an individual professional accountant, have to do, or not do?”
General Public Interest Duty of Individual Professional Accountants
Suppose, for example, that a professional accountant is asked to advise on the financial aspects of closing down a factory and consolidating production into another site far away. Does the accountant have to decide whether closing that factory is in the public interest before taking on the task? If so, how is such an assessment to be made?
This author has never found a useful definition of the public interest that allows conveniently measurable inputs to be plugged into a formula that produces a nice easy “it is/is not in the public interest” answer. If a public interest assessment is needed, there must be a complex balancing of all sorts of probably subjective and often incompatible demands; among other things, who the relevant public is needs to be considered, together with what they want (and, sometimes differently, what they need) and what is possible.
Fortunately, it is this author’s belief that professional accountants do not generally need to make that assessment, and indeed they are not in a position to do so. The example referred to above was considered in a significant disciplinary case considered by the oversight body for the accountancy profession in the United Kingdom, the Financial Reporting Council. To make a long story short, the case tribunal found that it would be absurd to consider that the general references to the public interest at the start of the Code of Ethics meant that professional accountants have to make the sort of assessment discussed above; that is a job for politicians to do, having regard to society’s wants and needs as a whole. This caused the ICAEW to think quite hard about what the public interest obligation of an individual accountant actually is, and it recently published some guidance for members about it.
It is worth noting that whatever the ICAEW and a tribunal of its oversight body think that the ICAEW’s Code of Ethics may or may not mean is of direct relevance only to the ICAEW’s members. These opinions bind nobody else. That said, the IESBA has a similar general statement in its Code of Ethics. Given that the ICAEW, AICPA, and other key accountancy bodies around the world seek to ensure their codes are consistent with the IESBA Code, these musings must have some relevance outside of the U.K.
So, having stated what a professional accountant’s public interest duty is not, what, then, is it?
As mentioned at the beginning of this article, the very existence of codes of ethics or professional conduct is driven by the accountancy profession’s public interest obligation. The codes, however written, are based on a set of fundamental principles of ethical behavior and set higher standards than “mere” compliance with the law in order to ensure that members act in the public interest. If individual professional accountants comply with the standards set out in these codes of ethics in spirit as well as letter, then in ICAEW’s view, they are fulfilling their individual public interest obligation.
Specific Public Interest Considerations
As stated above, this author believes that professional accountants do not generally need to make a separate public interest assessment. There are in many codes of ethics, however, a number of specific requirements that do explicitly refer to the public interest. For example, the IESBA provisions on Non-Compliance with Law and Regulations (NOCLAR) make specific reference to accountants making disclosures where considered to be in the public interest. The AICPA has been consulting on an interpretation that implements a variation of the IESBA NOCLAR requirements, and the ICAEW has yet to apply it in detail, so this article will not go into details. The point is that there will be instances where specific requirements in the Code mean that accountants will have to consider whether doing something would be in the public interest, so they are not completely excused.
The Relevant Public
As noted above, determining what is in the public interest is a complex process. The ICAEW produced a report setting out a framework for considering the public interest a few years ago; one of the key considerations in the framework was who the relevant public is. As a starting point, the public is, and has to be, everyone, but the key word is “relevant.” There will always be a large number of people whose welfare is not going to be affected one way or the other by the action under contemplation. That still leaves those whose welfare will be advantaged or disadvantaged, and others with a mandate to speak on behalf of those affected. Who that is will be context driven. For example, for an auditor of a large, publicly listed company, the relevant public might include investors, analysts, employees, customers, suppliers, local and national governments if the company is a major employment/revenue source, and groups who represent any of these (e.g., the SEC and PCAOB, investor groups, unions). If the accountant is advising on, say, maximizing purchasing efficiency, the relevant public might only be certain employees, the business owners, and certain suppliers. At the other end of the spectrum, accountants engaged in a project related to pollution emissions might find pretty much the entire population in a wide area around the business’s operation relevant.
It is worth noting that the relevant public for public interest consideration purposes is likely to be a much wider set of people than those to whom a legal obligation is owed. Law and ethics are not the same thing. There is not necessarily anything wrong, in the absence of specific requirements to the contrary, in deciding in a particular circumstance to focus on the interests only of those to whom there is a legal liability, or on those for whom one has a specific remit (e.g., a regulator charged with protecting investor interest). Focusing on a smaller set of people than the relevant public, however, is not the same as considering the public interest. Far too many regulators and others use the public interest as a smoke screen to justify a different set of considerations altogether.
A General Rule about Specifics
The author concedes that his is a mixed message. In likely 99.9% of circumstances, the answer to the question at the end of the first section is simple: there is no general, separate public interest duty for individual accountants, because the professional public interest duty is served individually by applying the fundamental ethical principles of integrity, objectivity, competence and due care, confidentiality, and professional behavior. That is not to say, however, that applying those principles is easy to comply with; the ethical standards are very demanding and subjective, as they should be.
In some specific instances, the code of ethics may require a public interest perspective to be applied when determining a particular action, and that requires a very wide set of people to be considered, whose interests are not likely to coincide. The ICAEW’s framework may help, but different people will inevitably arrive at different answers. When in doubt, auditors and accountants should document the logic applied.
But the need for judgment is no surprise to the responsible accountant. If being a trusted professional were easy, everyone would be doing it.
